Mr. Arun Jaitley a look at UNION BUDGET - CCH€¦ · Mr. Arun Jaitley Analysis by Dr. Girish Ahuja...

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QUOTES FROM THE BUDGET SPEECH

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REACTIONS TO BUDGET "I think it (doubling farmers' income) is an impossible dream and there is no inclination, no way of telling the country how it will be achieved because it implies a 14 percent annual increase in the farm income in each of the five years" — Former PM Manmohan Singh (Congress)

Yes, the Finance Minister has passed the test. There is something for everyone in this Budget. If someone is trying to give financial assistance to the poor instead of giving more money to the rich, this is a good thing — Mr. Yashwant Sinha (Former FM, BJP)

“Budget 2016 lacks both vision & conviction. A list of new promises without any account of the failure of tall promises made in last two budgets.”

“I want to thank the FM though for accepting my recommendation on removing import duty on Braille paper to help the visually impaired!” — Rahul Gandhi, Congress

“We shift to the other red carpet: the one leading to parliament and the budget. We’re looking for an Oscar for the best production, not acting.” — Anand Mahindra, chairman, Mahindra and Mahindra Ltd, on Twitter

“It will be a game-changing budget (for rural demand), though not immediately but in the longish term. I think in the current scenario, the biggest downer for all consumer companies is consumption, especially that emerging out of rural pockets; we have not seen an uptick in demand in a long time.” — Varun Berry, managing director, Britannia Industries

'No mention of defence outlay' — IBTimes India

It’s a balanced budget with an overarching theme of realizing inclusive and staggered economic growth, without stepping down on the path of fiscal prudence. Amongst positives, focus on infrastructure development, fixing distressed asset concerns of financial sector, employment generation through indigenization stand out. Bankruptcy code and a framework for commercial dispute settlement under PPP framework are the two most significant regulatory reforms rolled out. — Mukesh Butani, Managing Partner, BMR Legal

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Disclaimer

Budget 2016 proposals presented by the Finance Minister before the parliament are analysed in this document. It should not be relied upon as a substitute for detailed advice or a basis for formulating business decisions.

The proposals are subject to amendment as the Finance Bill is yet to be passed by the Parliament.

All reasonable care has been taken in preparing this document. Ravi Associates, Advocates & Solicitors, accept no responsibility for any error it may contain, whether caused by negligence, or otherwise or for any loss, however caused or sustained by the person relying on it.

This document is not an offer, invitation or solicitation of any kind and is meant for use of clients and firm's personnel only.

TEAM MEMBERS

Dr. Girish Ahuja 9810015290 Dr. Ravi Gupta 9810060708 CA Arun Ahuja 9811074486 CA Manish Garg 9999999818 CA Rajesh Jain 9811132392 CA Shashank Gupta 9711012424

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(Budget: 2016-17)

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CONTENTS

HIGHLIGHTS OF BUDGET 5

DIRECT TAX PROPOSALS 9

CUSTOMS DUTY 69

CENTRAL EXCISE 73

SERVICE TAX 85

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HIGHLIGHTS OF BUDGET KEY FEATURES OF BUDGET 2016-2017 INTRODUCTION

• Growth of Economy accelerated to 7.6% in 2015-16. • India hailed as a ‘bright spot’ amidst a slowing global economy by IMF. • Robust growth achieved despite very unfavorable global conditions and two

consecutive years shortfall in monsoon by 13%. • Foreign exchange reserves touched highest ever level of about 350 billion US

dollars. • Despite increased devolution to States by 55% as a result of the 14th Finance

Commission award, plan expenditure increased at RE stage in 2015-16 – in contrast to earlier years.

CHALLENGES & PRIORITIES IN 2016-17

• Risks of further global slowdown and turbulence. • Additional fiscal burden due to 7th Central Pay Commission recommendations

and OROP. • Continue with the ongoing reform programme and ensure passage of the

Goods and Service Tax bill and Insolvency and Bankruptcy law • Undertake important reforms by: giving a statutory backing to AADHAR

platform to ensure benefits reach the deserving. • Undertake important banking sector reforms and public listing of general

insurance companies undertake significant changes in FDI policy.

AGRICULTURE AND FARMERS’ WELFARE

• Allocation for Agriculture and Farmers’ welfare is Rs. 35,984 crore. • ‘Pradhan Mantri Krishi Sinchai Yojana’ to be implemented in mission mode.

28.5 lakh hectares will be brought under irrigation. • Implementation of 89 irrigation projects under AIBP, which are languishing for

a long time, will be fast tracked. • A dedicated Long Term Irrigation Fund will be created in NABARD with an

initial corpus of about 20,000 crore • To reduce the burden of loan repayment on farmers, a provision of 15,000

crore has been made in the BE 2016-17 towards interest subvention.

RURAL SECTOR

• Allocation for rural sector - 87,765 crore. • Rs. 2.87 lakh crore will be given as Grant in Aid to Gram Panchayats and

Municipalities as per the recommendations of the 14th Finance Commission

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• Every block under drought and rural distress will be taken up as an intensive Block under the Deen Dayal Antyodaya Mission

• A sum of 38,500 crore allocated for MGNREGS. • 300 Rurban Clusters will be developed under the Shyama Prasad Mukherjee

Rurban Mission • 100% village electrification by 1st May, 2018.

SOCIAL SECTOR INCLUDING HEALTH CARE • Allocation for social sector including education and health care – 1,51,581

crore. • 2,000 crore allocated for initial cost of providing LPG connections to • BPL families. • New health protection scheme will provide health cover up to One lakh per

family. • For senior citizens an additional top-up package up to 30,000 will be

provided. • 3,000 Stores under Prime Minister’s Jan Aushadhi Yojana will be opened

during 2016-17. • ‘National Dialysis Services Programme’ to be started under National Health

Mission through PPP mode. • “Stand Up India Scheme” to facilitate at least two projects per bank • branch. This will benefit at least 2.5 lakh entrepreneurs. • National Scheduled Caste and Scheduled Tribe Hub to be set up in

partnership with industry associations.� EDUCATION, SKILLS AND JOB CREATION

• 62 new Navodaya Vidyalayas will be opened Sarva Shiksha Abhiyan to increasing focus on quality of education

• Regulatory architecture to be provided to ten public and ten private institutions to emerge as world-class Teaching and Research Institutions.

• Higher Education Financing Agency to be set-up with initial capital base of 1000 Crores Digital Depository for School Leaving Certificates, College

Degrees, Academic Awards and Mark sheets to be set-up. INFRASTRUCTURE AND INVESTMENT

• Total investment in the road sector, including PMGSY allocation, would be 97,000 crore during 2016-17.

• India’s highest ever kilometres of new highways were awarded in 2015. • To approve nearly 10,000 kms of National Highways in 2016-17. • Allocation of 55,000 crore in the Budget for Roads. Additional 15,000 crore

to be raised by NHAI through bonds. • Total outlay for infrastructure - 2,21,246 crore.

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FINANCIAL SECTOR REFORMS

• A comprehensive Code on Resolution of Financial Firms to be introduced. • Statutory basis for a Monetary Policy framework and a Monetary Policy

Committee through the Finance Bill 2016. • A Financial Data Management Centre to be set up. • RBI to facilitate retail participation in Government securities. • New derivative products will be developed by SEBI in the Commodity

Derivatives market.

GOVERNANCE AND EASE OF DOING BUSINESS

• Introduce DBT on pilot basis for fertilizer. • Amendments in Companies Act to improve enabling environment for start-

ups.

FISCAL DISCIPLINE

• Fiscal deficit in RE 2015-16 and BE 2016-17 retained at 3.9% and 3.5%. • Revenue Deficit target from 2.8% to 2.5% in RE 2015-16 • Total expenditure projected at 19.78 lakh crore • Plan expenditure pegged at 5.50 lakh crore under Plan, increase of 15.3% • Non-Plan expenditure kept at 14.28 lakh crores • Special emphasis to sectors such as agriculture, irrigation, social sector

including health, women and child development, welfare of Scheduled Castes and Scheduled Tribes, minorities, infrastructure.

MOVING TOWARDS A PENSIONED SOCIETY

• Withdrawal up to 40% of the corpus at the time of retirement to be tax exempt in the case of National Pension Scheme (NPS). Annuity fund which goes to legal heir will not be taxable.

• In case of superannuation funds and recognized provident funds, including EPF, the same norm of 40% of corpus to be tax free will apply in respect of corpus created out of contributions made on or from 1.4.2016.

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DIRECT TAX PROPOSALS

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DIRECT TAXES

Rates of income-tax for assessment year 2017-18

Rates of Income Tax

(A) I. In the case of every Individual (other than those covered in part (II) or (III) below) or Hindu undivided family or AOP/BOI (other than a co-operative society) whether incorporated or not, or every artificial judicial person

Upto 2,50,000 Nil 2,50,010 to 5,00,000 10% 5,00,010 to 10,00,000 20%

Above 10,00,000 30% II. In the case of every individual, being a resident in India, who is of the

age of 60 years or more but less than 80 years at any time during the previous year.

Upto 3,00,000 Nil 3,00,010 to 5,00,000 10% 5,00,010 to 10,00,000 20%

Above 10,00,000 30% III. In the case of every individual, being a resident in India, who is of the

age of 80 years or more at any time during the previous year. Upto 5,00,000 Nil 5,00,010 to 10,00,000 20%

Above 10,00,000 30%

Surcharge: The amount of income-tax computed in accordance with the above rates shall be increased by a surcharge at the rate of 15% of such income-tax in case of a person having a total income exceeding 1 crore.

Marginal relief: The total amount payable as income-tax and surcharge on total income exceeding 1 crore shall not exceed the total amount payable as income-tax on a total income of 1 crore by more than the amount of income that exceeds 1 crore.

Cess: 'Education Cess' @ 2%, and 'Secondary and Higher Education Cess (SHEC)' @ 1% on income tax shall be chargeable.

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(B) In the case of every co-operative society

(1) where the total income does not exceed 10,000

10% of the total income;

(2) where the total income exceeds 10,000 but does not exceed 20,000

1,000 plus 20% of the amount by which the total income exceeds 10,000;

(3) where the total income exceeds 20,000

3,000 plus 30% of the amount by which the total income exceeds 20,000.

Surcharge: The amount of income-tax shall be increased by a surcharge at the rate of 12% of such income-tax in case of a co-operative society having a total income exceeding 1 crore.


Cess: 'Education Cess' @ 2% and SHEC @ 1% on income tax shall be chargeable.

(C) In case of any firm (including limited liability partnership) — 30%. Surcharge: The amount of income-tax shall be increased by a surcharge

at the rate of 12% of such income-tax in case of a firm having a total income exceeding 1 crore.


Cess: 'Education Cess' @ 2% and SHEC @ 1% on income tax shall be chargeable.

(D) In the case of a company (i) For domestic companies: 30%, Surcharge: The surcharge of 7% in case of a domestic company shall be

levied if the total income of the domestic company exceeds 1 crore but does not exceed 10 crore.

The surcharge at the rate of 12% shall be levied if the total income of the domestic company exceeds 10 crore.

Marginal relief: However, the total amount payable as income-tax and surcharge on total income exceeding 1 crore but not exceeding 10 crore,

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shall not exceed the total amount payable as income-tax on a total income of 1 crore, by more than the amount of income that exceeds 1 crore. The total

amount payable as income-tax and surcharge on total income exceeding 10 crore, shall not exceed the total amount payable as income-tax and surcharge on a total income of 10 crore, by more than the amount of income that exceeds 10 crore.

Cess: 'Education Cess' @ 2%, and 'Secondary and Higher Education Cess' @ 1% on income tax (inclusive of surcharge if applicable) shall be chargeable.

(ii) For foreign company: 40%. Surcharge: In case of companies other than domestic companies, the

surcharge of 2% shall be levied if the total income exceeds 1 crore but does not exceed 10 crore.

The surcharge at the rate of 5% shall be levied if the total income of the company other than domestic company exceeds 10 crore.

Marginal relief: However, the total amount payable as income-tax and surcharge on total income exceeding 1 crore but not exceeding 10 crore, shall not exceed the total amount payable as income-tax on a total income of

1 crore, by more than the amount of income that exceeds 1 crore. The total amount payable as income-tax and surcharge on total income exceeding 10 crore, shall not exceed the total amount payable as income-tax and surcharge on a total income of 10 crore, by more than the amount of income that exceeds 10 crore.

Cess: 'Education Cess' @ 2%, and 'Secondary and Higher Education Cess' @ 1% on income tax (inclusive of surcharge if applicable) shall be chargeable.

(E) In case of a domestic company whose total turnover or gross receipts do not exceed Rs. 5 crores — 29%

(F) In case of newly setup domestic companies engaged solely in the business of manufacture or production of article or thing [Section 115BA]

The income-tax payable in respect of the total income of such domestic company for any previous year relevant to the assessment year beginning on or after the 1st day of April, 2017 shall be computed @ 25% at the option of the company, if,— (i) the company has been setup and registered on or after 1st day of March,

2016;

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(ii) the company is engaged in the business of manufacture or production of any article or thing and is not engaged in any other business;

(iii) the company while computing its total income has not claimed any benefit under section 10AA, benefit of accelerated depreciation, benefit of additional depreciation, investment allowance, expenditure on scientific research and any deduction in respect of certain income under Part-C of Chapter-VI-A other than the provisions of section 80JJAA; and

(iv) the option is furnished in the prescribed manner before the due date of furnishing of income.

Amendments relating to Definitions

1. Definition of capital asset amended [Section 2(14)] [W.r.e.f. A.Y. 2016-17] The Gold Monetization Scheme, 2015 has been introduced by the Government of

India. With a view to extend the same tax benefits to the scheme as were available to the Gold Deposit Scheme, 1999 it is proposed to amend Clause (14) of section 2, so as to exclude Deposit Certificates issued under Gold Monetisation Scheme, 2015 notified by the Central Government, from the definition of capital asset and thereby to exempt it from capital gains tax. 2. Definition of term "hearing" [Section 2(23C) inserted] [W.e.f. 1-6-2016]

"Hearing" includes communication of data and documents through electronic mode. 3. Exemption of Central Government subsidy or grant or cash assistance, etc. towards corpus of fund established for specific purposes from the definition of Income [Section 2(24)] [W.e.f. A.Y. 2017-18]

The Finance Act, 2015 had amended the definition of income under clause (24) of section 2 of the Act so as to provide that the income shall include assistance in the form of a subsidy or grant or cash incentive or duty drawback or waiver or concession or reimbursement (by whatever name called) by the Central Government or a State Government or any authority or body or agency in cash or kind to the assessee other than the subsidy or grant or reimbursement which is taken into account for determination of the actual cost of the asset in accordance with the provisions of Explanation 10 to clause (1) of section 43 of the Income-tax Act.

As a result grant or cash assistance or subsidy etc. provided by the Central Government for budgetary support of a trust or any other entity formed specifically for operationalizing certain government schemes will be taxed in the hands of trust or any other entity. Therefore, it is proposed to amend section 2(24) to provide that subsidy or grant by the Central Government for the purpose of the corpus of a trust or institution established by the Central Government or State government shall not form part of income.

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Amendments relating to Determination of Residential Status

4. Enabling provision for implementation of various provisions of the Act in case of a foreign company held to be resident in India [Section 6(3)] [W.e.f. A.Y. 2017-18]

In order to provide clarity in respect of implementation of POEM based rule of residence and also to address concerns of the stakeholders, it is proposed to:— (a) defer the applicability of POEM based residence test by one year and the

determination of residence based on POEM shall be applicable from 01/04/17.

(b) provide a transition mechanism for a company which is incorporated outside India and has not earlier been assessed to tax in India. The Central Government is proposed to be empowered to notify exception, modification and adaptation subject to which, the provisions of the Act relating to computation of income, treatment of unabsorbed depreciation, setoff or carry forward and setoff of losses, special provision relating to avoidance of tax and the collection and recovery of taxes shall apply in a case where a foreign company is said to be resident in India due to its POEM being in India for the first time and the said company has never been resident in India before.

(c) provide that these transition provisions would also cover any subsequent previous year upto the date of determination of POEM in an assessment proceedings. However, once the transition is complete, then normal provision of the Act would apply.

(d) provide that in the notification, certain conditions including procedural conditions subject to which these adaptations shall apply can be provided for and in case of failure to comply with the conditions, the benefit of such notification would not be available to the foreign company.

(e) provide that every notification issued in exercise of this power by the Central Government shall be laid before each house of the Parliament.

Amendments relating to income deemed to accrue or arise in India

5. Exemption in respect of certain activity related to diamond trading in "Special Notified Zone" [Explanation to section 9(1)] [W.r.e.f. A.Y. 2016-17]

The existing provisions of Section 5 of the Act provides for the scope of total income. In case of non-resident person, the taxation of income in India happens only if the income accrues or arises in India or is deemed to accrue or arise in India or is received in India. Section 9 of the Act provides circumstances under which income is deemed to accrue or arise in India. One of the circumstances providing for income to be deemed to accrue or arise in India is if any income is directly or indirectly derived through or from a business connection in India.

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A "Special Notified Zone" (SNZ) had been created to facilitate shifting of operations by foreign mining companies (FMC) to India and to permit the trading of rough diamonds in India by the leading diamond mining companies of the world. The activity of FMC of mere display of rough diamonds even with no actual sale taking place in India may lead to creation of business connection in India of the FMC. This potential tax exposure has been an area of concern for the mining companies willing to undertake these activities in India.

In order to facilitate the FMCs to undertake activity of display of uncut diamond (without any sorting or sale) in the special notified zone, it is proposed to amend section 9 of the Act to provide that in the case of a foreign company engaged in the business of mining of diamonds, no income shall be deemed to accrue or arise in India to it through or from the activities which are confined to display of uncut and unassorted diamonds in a Special Zone notified by the Central Government in the Official Gazette in this behalf. 6. Modification in conditions of special taxation regime for off shore funds [Section 9A] [W.e.f. A.Y. 2017-18]

In order to rationalize the regime and to address the concerns of the industry, it is proposed to modify the conditions to provide that the eligible investment fund for purposes of section 9A, shall also mean a fund established or incorporated or registered outside India in a country or a specified territory notified by the Central Government in this behalf. It is also proposed to provide that the condition of fund not controlling and managing any business in India or from India shall be restricted only in the context of activities in India.

Amendments relating to income exempt from tax

7. Rationalisation of tax treatment of Recognised Provident Funds, Pension Funds and National Pension Scheme [Section 10(12), 10(12A) and 10(13)] [W.e.f. A.Y. 2017-18]

Under the existing provisions of the Income-tax Act, tax treatment for the National Pension System (NPS) referred to in section 80CCD is Exempt, Exempt and Tax (EET) i.e., the monthly/periodic contributions during the pension accumulation phase are allowed as deduction from income for tax purposes; the returns generated on these contributions during the accumulation phase are also exempt from tax; however, the terminal benefits on exit or superannuation, in the form of lump sum withdrawals, are taxable in the hands of the individual subscriber or his nominee in the year of receipt of such amounts.

However, commutation of Government Pension and superannuation fund is exempt from taxation. The monthly contribution, annual accrued income, advances/ withdrawals for specific purposes and final withdrawal from the Recognised Provident Funds (RPFs) on superannuation are also accorded EEE status i.e. Exempt, Exempt, Exempt.

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In order to bring greater parity in tax treatment of different types of pension plans, it is proposed to amend section 10 so as to provide that in respect of the contributions made on or after the 1stday of April, 2016 by an employee participating in a recognised provident fund and superannuation fund, up to 40 % of the accumulated balance attributable to such contributions on withdrawal shall be exempt from tax.

Under the existing provisions, any payment from an approved superannuation fund made to an employee in lieu of or in commutation of an annuity on his retirement at or after a specified age or on his becoming incapacitated prior to such retirement is exempt from tax.

It is proposed to amend the said provisions so as to provide that any payment in commutation of an annuity purchased out of contributions made on or after the 1stday of April, 2016, which exceeds forty per cent of the annuity, shall be chargeable to tax.

Under the existing provisions of section 80CCD, any payment from National Pension System Trust to an employee on account of closure or his opting out of the pension scheme is chargeable to tax.

It is proposed to provide that any payment from National Pension System Trust to an employee on account of closure or his opting out of the pension scheme referred to in Section 80CCD, to the extent it does not exceed forty percent of the total amount payable to him at the time of closure or his opting out of the scheme, shall be exempt from tax. However, the whole amount received by the nominee, on death of the assessee shall be exempt from tax.

Under section 17, perquisite includes the amount of any contribution exceeding one lakh rupees to an approved superannuation fund by the employer in the hands of the assessee.

Under the Part A of Fourth Schedule to the Income-tax Act contributions made by employer to the credit of an employee participating in a recognised provident fund, which are in excess of twelve percent of the salary of the employee, are liable to tax in the hands of the employee. However, there is no monetary limit for the contribution made by the employer though there is a monetary ceiling for employee's contribution.

The limit of contribution by the employee eligible under section 80C of the Act has been increased from one lakh rupees to one lakh and fifty thousand rupees vide Finance Act(No.2), 2014. Therefore, in order to bring parity in the monetary limit for contribution by the employer and the employee, it is proposed to amend the said section and said schedule so as to provide the limit of employer's contribution to one lakh and fifty thousand rupees, without attracting tax.

Further with a view to bring all the pension plans under one umberalla, it is also proposed to amend:— (i) the said schedule so as to provide exemption to one-time portability from a

recognised provident fund to National Pension System; (ii) clause (13) of section 10 so as to provide that any payment from an approved

superannuation fund by way of transfer to the account of the employee under NPS referred to in section 80CCD and notified by the Central Government shall be exempt from tax.

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8. Exemption in respect of interest on deposit certificates under Gold Monetization Scheme, 2015 [Section 10(15)] [W.r.e.f. A.Y. 2016-17]

It is proposed to amend clause (15) of section 10 so as to provide that the interest on Deposit Certificates issued under the Gold Monetization Scheme, 2015, shall be exempt from income-tax. 9. New Taxation Regime for securitisation trust and its investors [Section 10(23DA)] [W.e.f. 1-6-2016]

In order to rationalise the tax regime for securitisation trust and its investors, and to provide tax pass through treatment, it is proposed to amend the provisions of the Act to substitute the existing special regime for securitisation trusts by a new regime having the following elements:— (i) The new regime shall apply to securitisation trust being an SPV defined under

SEBI (Public Offer and Listing of Securitised Debt Instrument) Regulations, 2008 or SPV as defined in the guidelines on securitisation of standard assets issued by RBI or being setup by a securitisation company or a reconstruction company in accordance with the SARFAESI Act;

(ii) The income of securitisation trust shall continue to be exempt. However, exemption in respect of income of investor from securitisation trust would not be available and any income from securitisation trust would be taxable in the hands of investors;

(iii) The income accrued or received from the securitisation trust shall be taxable in the hands of investor in the same manner and to the same extent as it would have happened had investor made investment directly in the underlying assets and not through the trust;

(iv) Tax deduction at source shall be effected by the securitisation trust at the rate of 25% in case of payment to resident investors which are individual or HUF and @ 30% in case of others. In case of payments to non-resident investors, the deduction shall be at rates in force;

(v) The facility for the investors to obtain low or nil deduction of tax certificate would be available; and

(vi) The trust shall provide breakup regarding nature and proportion of its income to the investors and also to the prescribed income-tax authority.

Further, it is proposed to provide that the current regime of distribution tax shall cease to apply in case of distribution made by securitisation trusts with effect from 01.06.2016. 10. Tax Incentives to International Financial Services Centre [Section 10(38)] [W.e.f. A.Y. 2017-18]

Under the existing provisions of clause (38) of section 10, income by way of long term capital gains arising from equity shares or units of an equity oriented fund or business trust is exempt where securities transaction tax is paid.

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With a view to incentivise the growth of International Financial Services Centres into a world class financial services hub, it is proposed to amend the section 10 so as to provide for exemption from tax on capital gains to the income arising from transaction undertaken in foreign currency on a recognised stock exchange located in an International Financial Services Centre even when securities transaction tax is not paid in respect of such transactions. 11. Exemption of income of Foreign company from storage and sale of crude oil stored as part of strategic reserves [Section 10(48A)] [W.r.e.f. A.Y. 2016-17]

The existing provisions of section 5 of the Act provides for the scope of total income. In the case of a non-resident, the taxation of income takes place only if the income accrues or arises in India or is deemed to accrue or arise in India or is received in India. Section 9 of the Act provides for circumstances in which the income is deemed to accrue or arise in India. One of the circumstances providing for income to be deemed to accrue or arise in India is if any income is directly or indirectly derived through or from a business connection in India.

The Indian Strategic Petroleum Reserves Limited (ISPRL) is in the process of setting up underground storage facility for storage of crude oil as part of strategic reserves. The maintenance of strategic reserves is in India's national interest and ensures price stability for Indian oil companies. The filling cost of such facility entails huge financial burden. The Government has explored the possibility of meeting a substantial part of the financial burden through participation of private players including foreign national oil companies (NOCs) and multinational companies (MNCs) storing and selling crude oil from outside India. However, the storage of crude oil by NOCs/MNCs and its sale in India would create tax liability for these entities.

In order to achieve neutrality in terms of taxation to encourage the NOCs & MNCs to store their crude oil in India and to build up strategic oil reserves, it is proposed to amend the provisions of section 10 of the Act to provide that any income accruing or arising to a foreign company on account of storage of crude oil in a facility in India and sale of crude oil therefrom to any person resident in India shall not be included in the total income, if,— I. such storage and sale by the foreign company is pursuant to an agreement or

an arrangement entered into by the Central Government or approved by the Central Government; and

II. having regard to the national interest, the foreign company and the agreement or arrangement are notified by the Central Government in this behalf.

12. Exemption in respect of income arising from providing specified services on which equalisation levy is chargeable [Section 10(50)] [W.e.f. 1-6-2016]

See para 74. 13. Phasing out of deduction available in respect of newly established units in SEZ [Section 10AA] [W.e.f. A.Y. 2017-18]

See para 20.

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Amendments relating to income under the head "salaries"

14. Raising the exemption in respect of employer contribution to superannuation fund [Section 17(2)(vii)] [W.e.f. A.Y. 2017-18]

Under section 17, perquisite includes the amount of any contribution exceeding one lakh rupees to an approved superannuation fund by the employer in the hands of the assessee. This limit is proposed to be extended to Rs. 1,50,000.

Amendments relating to income under the head "house property"

15. Increase in time period for acquisition or construction of self-occupied house property for claiming deduction of interest [Section 24] [W.e.f. A.Y. 2017-18]

The existing provision of Clause (b) of section 24 provides that interest payable on capital borrowed for acquisition or construction of a house property shall be deducted while computing income from house property. The second proviso to the said clause provides that a deduction of an amount of two lakh rupees shall be allowed where a house property referred to in sub-section (2) of section 23 (self-occupied house property) has been acquired or constructed with capital borrowed on or after the 1 stday of April, 1999 and such acquisition or construction is completed within three years from the end of the financial year in which capital was borrowed.

In view of the fact that housing projects often take longer time for completion, it is proposed that second proviso of clause (b) of section 24 be amended to provide that the deduction under the said proviso on account of interest paid on capital borrowed for acquisition or construction of a self-occupied house property shall be available if the acquisition or construction is completed within five years from the end of the financial year in which capital was borrowed.

16. Simplification and rationalisation of provisions relating to taxation of unrealised rent and arrears of rent [Sections 25A, 25AA and 25B] [W.e.f. A.Y. 2017-18]

Existing provisions of sections 25A, 25AA and 25B relate to special provisions on taxation of unrealised rent allowed as deduction when realised subsequently, unrealised rent received subsequently and arrears of rent received respectively. Certain deductions are available thereon.

It is proposed to simplify these provisions and merge them under a single new section 25A and bring uniformity in tax treatment of arrears of rent and unrealised rent. It is proposed to provide that the amount of rent received in arrears or the amount of unrealised rent realised subsequently by an assessee shall be charged to income-tax in the financial year in which such rent is received or realised, whether the assessee is the owner of the property or not in that financial year. It is also proposed

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that thirty per cent of the arrears of rent or the unrealised rent realised subsequently by the assessee shall be allowed as deduction.

Amendments relating to income under the head "Profits and Gains of Business or Profession"

17. Taxation of Non-compete fees and exclusivity rights in case of Profession [Section 28(va)] [W.e.f. A.Y. 2017-18]

The existing provision of clause (va) of section 28 of the Act includes within the scope of "profit and gains of business or profession" any sum received or receivable in cash or in kind under an agreement for not carrying out activity in relation to any business; or not to share any know how, patent, copyright, trade mark, licence, franchise or any other business or commercial right of similar nature or information or technique likely to assist in the manufacture or processing of goods or provision for services and is chargeable to tax as business income. Further, the provisions clarify that receipts for transfer of right to manufacture, produce or process any article or thing or right to carry on any business, which are chargeable to tax under the head "Capital gains", would not be taxable as profits and gains of business or profession. Under section 45 of the Act, any capital receipt arising out of transfer of any business or commercial rights is taxable under the head "Capital gains". The amount of "Capital gains" is computed according to section 48 of the Act. For this purpose, 'cost of acquisition' and 'cost of improvement' are defined under section 55. However, non-compete fee received/receivable in relation to carrying out of profession are not covered under these provisions.

It is proposed to amend clause (va) of section 28 of the Act to bring the non-compete fee received/receivable (which are recurring in nature) in relation to not carrying out any profession, within the scope of section 28 of the Act i.e. the charging section of profits and gains of business or profession. Further, it is also proposed to amend the proviso to clarify that receipts for transfer of right to carry on any profession, which are chargeable to tax under the head "Capital gains", would not be taxable as profits and gains of business or profession. It is also proposed to amend section 55 so as to provide that the 'cost of acquisition' and 'cost of improvement' for working out "Capital gains" on capital receipts arising out of transfer of right to carry on any profession shall also be taken as 'nil'.

18. Extending the benefit of initial additional depreciation for power sector [Section 32(1)(iia)] [W.e.f. A.Y. 2017-18]

Under the existing provisions of section 32(1)(iia) of the Act, additional depreciation of 20% is allowed in respect of the cost of new plant or machinery acquired and installed by certain assessees engaged in the business of generation and distribution of power. This depreciation allowance is over and above the deduction allowed for general depreciation under section 32(1 of the Act.

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Under the existing provisions, the benefit of additional depreciation is not available on the new machinery or plant installed by an assessee engaged in the business of transmission of power.

In order to rationalise the incentive of power sector, it is proposed to amend this section so as to provide that an assessee engaged in the business of transmission of power shall also be allowed additional depreciation at the rate of 20% of actual cost of new machinery or plant acquired and installed in a previous year.

19. Rationalisation of scope of investment allowance [Section 32AC] [W.r.e.f. A.Y. 2016-17]

The existing provision of sub-section (1A) in section 32AC of the Act provides for investment allowance at the rate of 15% on investment made in new assets (plant and machinery) exceeding Rs.25 crore in a previous year by a company engaged in manufacturing or production of any article or thing subject to the condition that the acquisition and installation has to be done in the same previous year. This tax incentive is available up to 31.03.2017.

The dual condition of acquisition and installation causes genuine hardship in cases in which assets having been acquired could not be installed in same previous year.

It is proposed to amend the sub-section (1A) of section 32AC so as to provide that the acquisition of the plant & machinery of the specified value has to be made in the previous year. However, installation may be made by 31.03.2017 in order to avail the benefit of investment allowance of 15%. It is further proposed to provide that where the installation of the new asset is in a year other than the year of acquisition, the deduction under this sub-section shall be allowed in the year in which the new asset is installed.

20. Proposed Phase out plan of incentives (Profit linked Deductions/ weighted deduction) available under the Act. [W.e.f. A.Y. 2017-18] Sl. No

Section/ Incentive currently available in the Act

Proposed phase out measures/

Amendment 1 10AA-Special provision

in respect of newly established units in Special economic zones (SEZ).

Profit linked deductions for units in SEZ for profit derived from export of articles or things or services

No deduction shall be available to units commencing manufacture or production of article or thing or start providing services on or after 1st day April, 2020. (from previous year 2020-21 onwards).

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Sl. No

Section/ Incentive currently available in the Act

Proposed phase out measures/

Amendment

2 35AC-Expenditure on eligible projects or schemes.

Deduction for expenditure incurred by way of payment of any sum to a public sector company or a local authority or to an approved association or institution, etc. on certain eligible social development project or a scheme.

No deduction shall be available with effect from 1.4.2017 (i.e from previous year 2017-18 and subsequent years).

3 35CCD-Expenditure on skill development project.

Weighted deduction of 150 per cent on any expenditure incurred (not being expenditure in the nature of cost of any land or building) on any notified skill development project by a company.

Deduction shall be restricted to 100 per cent from 01.04.2020 (i.e. from previous year 2020-21 onwards).

4 Section 80IA; 80IAB, and 80IB - Deduction in respect of profits derive from

(a) development, operation and maintenance of an insfrastructure facility (80-IA)

(b) development of special economic zone (80-IAB)

(c) production of mineral oil and natural gas [80-IB(9)]

100 per cent profit linked deductions for specified period on eligible business carried on by industrial undertakings or enterprises referred in section 80IA; 80IAB, and 80IB.

No deduction shall be available if the specified activity commences on or after 1 st day April, 2017. (i.e from previous year 2017-18 and subsequent years).

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21. Proposed Phase out plan of incentives (Accelerated Depreciation/Weighted Deduction) available under the Act [W.e.f. A.Y. 2018-19]

Sl. No

Section Incentive currently available in the Act

Proposed phase out measures/Amendment

1 32 read with rule 5 of Income-tax Rules, 1962- Accelerated

Depreciation.

Accelerated depreciation is provided to certain Industrial sectors in order to give impetus for investment. The depreciation under the Income-tax Act is available up to 100% in respect of certain block of assets.

To amend the new Appendix IA read with rule 5 of Income-tax Rules, 1962 to provide that highest rate of depreciation under the Income-tax Act shall be restricted to 40% w.e.f 01.4.2017. (i.e from previous year 2017-18 and

subsequent years).

The new rate is proposed to be made applicable to all the assets (whether old or new) falling in the relevant block of assets.

2 Section/

35(1) Expenditure

on scientific research.

Incentive currently available in the Act Weighted deduction from the business income to the extent of 175 per cent of any sum paid to an approved scientific research association which has the object of undertaking scientific research. Similar deduction is also available if a sum is paid to an approved university, college or other institution and if such sum is used for scientific research.


Weighted deduction shall be restricted to 150 per cent from 01.04.2017 to 31.03.2020 (i.e. from previous year 2017-18 to previous year 2019-20) and deduction shall be restricted to 100 per cent from 01.04.2020 (i.e. from previous year 2020-21 onwards).

3 35(1)(iia)-Expenditure on scientific research.

Weighted deduction from the business income to the extent of 125 per cent of any sum paid as contribution to an approved scientific research company.

Deduction shall be restricted to 100 per cent with effect from 01.04.2017 (i.e. from previous year 2017-18 and subsequent years).

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Sl. No



4 35(1)(iii)- Expenditure on scientific research.

Weighted deduction from the business income to the extent of 125 per cent of contribution to an approved research association or university or college or other institution to be used for research in social science or statistical research.

Deduction shall be restricted to 100 per cent with effect from 01.04.2017 (i.e. from previous year 2017-18 and subsequent years).

5 35(2AA)- Expenditure on scientific research.

Weighted deduction from the business income to the extent of 200 per cent of any sum paid to a National Laboratory or a university or an Indian Institute of Technology or a specified person for the purpose of approved scientific research programme.

Weighted deduction shall be restricted to 150 per cent with effect from 01.04.2017 to 31.03.2020 (i.e. from previous year 2017-18 to previous year 2019-20).


6 35(2AB)- Expenditure on scientific research.

Weighted deduction of 200 per cent of the expenditure (not being expenditure in the nature of cost of any land or building) incurred by a company, engaged in the business of bio-technology or in the business of manufacture or production of any article or thing except some items appearing in the negative list specified in Schedule-XI, on scientific research on approved in-house research and development facility.

Weighted deduction shall be restricted to 150 per cent from 01.04.2017 to 31.03.2020 (i.e. from previous year 2017-18 to previous year 2019-20).


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Sl. No



7 35AD- Deduction in respect of specified business.

In case of a cold chain facility, warehousing facility for storage of agricultural produce, an affordable housing project, production of fertiliser and hospital weighted deduction of 150 per cent of capital expenditure (other than expenditure on land, goodwill and financial assets) is allowed.

In case of a cold chain facility, warehousing facility for storage of agricultural produce, hospital, an affordable housing project, production of fertilizer, deduction shall be restricted to 100 per cent of capital expenditure w.e.f. 01.4.2017 (i.e. from previous year 2017-18 onwards).

8. 35CCC- Expenditure on notified agricultural extension project.

Weighted deduction of 150 per cent of expenditure incurred on notified agricultural extension project.

Deduction shall be restricted to 100 per cent from 1.4.2017 (i.e from previous year 2017-18 onwards).

22. Amortisation of spectrum fee for purchase of spectrum [Section 35ABA] [W.e.f. A.Y. 2017-18]

Under section 32 of the Act, depreciation is allowed in respect of assets including certain intangible assets. Under section 35ABB of the Act, amortisation of license fee in case of telecommunication service is provided.

Government has newly introduced spectrum fee for auction of airwaves. There is uncertainty in tax treatment of payments in respect of Spectrum i.e. whether spectrum is an intangible asset and the spectrum fees paid is eligible for depreciation under section 32 of the Act or whether it is in the nature of a 'license to operate telecommunication business' and eligible for deduction under section 35ABB of the Act.

In order to provide clarity and avoid any future litigation and controversy, it is proposed to insert a new section 35ABA in the Act to provide for tax treatment of spectrum fee. The section seeks to provide,— (i) any capital expenditure incurred and actually paid by an assessee on the

acquisition of any right to use spectrum for telecommunication services by paying spectrum fee will be allowed as a deduction in equal instalments over the period for which the right to use spectrum remains in force.

(ii) where the spectrum is transferred and proceeds of the transfer are less than the expenditure remaining unallowed, a deduction equal to the expenditure remaining unallowed as reduced by the proceeds of transfer, shall be allowed in the previous year in which the spectrum has been transferred.

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(iii) if the spectrum is transferred and proceeds of the transfer exceed the amount of expenditure remaining unallowed, the excess amount shall be chargeable to tax as profits and gains of business in the previous year in which the spectrum has been transferred.

(iv) unallowed expenses in a case where a part of the spectrum is transferred would be amortised.

(v) under the scheme of amalgamation, if the amalgamating company sells or transfer the spectrum to an amalgamated company, being an Indian company, then the provisions of this section will apply to amalgamated company as they would have applied to amalgamating company if later has not transferred the spectrum.

23. Deduction in respect of provision for bad and doubtful debt in the case of Non-Banking Financial companies. [Section 36] [W.e.f. A.Y. 2017-18]

Under the existing provisions of sub-clause (c) of clause (viia) of sub-section (1) of section 36 of the Act, in computing the profits of a public financial institutions, State financial corporations and State industrial investment corporations a deduction, limited to an amount not exceeding five per cent of the gross total income, computed, before making any deduction under the aforesaid clause and Chapter VI-A, is allowed in respect of any provision for bad and doubtful debt.

Considering the fact that Non-Banking Financial companies (NBFCs) are also engaged in financial lending to different sectors of society, it is proposed to amend the provision of clause (viia) of sub-section (1) of section 36 so as to provide deduction from total income (computed before making any deduction under this clause and Chapter-VIA) on account of provision for bad and doubtful debts to the extent of five per cent of the total income in the case of NBFCs.

24. Expenses incurred by the assessee towards specified services to be covered under section 40(a)(ia) [Section 40(a)(ia)] [W.e.f. 1-6-2016]

In order to ensure compliance with the provisions relating to equalisation levy, it is proposed to provide that the expenses incurred by the assessee towards specified services chargeable under Chapter relating to equalisation levy shall not be allowed as deduction in case of failure of the asseseee to deduct and deposit the equalisation levy to the credit of Central government. For details see para 74.

25. Extension of scope of section 43B to include certain payments made to Railways [Section 43B] [W.e.f. A.Y. 2017-18]

The existing provisions of section 43B of the Act, inter alia, provide that any sum payable by the assessee by way of tax, cess, duty or fee, employer contribution to Provident Fund, etc., is allowable as deduction of the previous year in which the liability to pay such sum was incurred (relevant previous year) if the same is actually paid on or before the due date of furnishing of the return of income irrespective of method of accounting followed by a person.

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With a view to ensure the prompt payment of dues to Railways for use of the Railway assets, it is proposed to amend section 43B so as to expand its scope to include payments made to Indian Railways for use of Railway assets within its ambit. 26. Maintenance of accounts by certain persons [Section 44AA] [W.e.f. A.Y. 2017-18]

See para 28 and 29. 27. Audit of accounts of certain persons [Section 44AB] [W.e.f. A.Y. 2017-18]

Under the existing provisions of section 44AB of the Act every person carrying on a profession is required to get his accounts audited if the total gross receipts in a previous year exceed twenty five lakh rupees.

In order to reduce the compliance burden, it is proposed to increase the threshold limit of total gross receipts, specified under section 44AB for getting accounts audited, from twenty five lakh rupees to fifty lakh rupees in the case of persons carrying on profession. 28. Increase in threshold limit for presumptive taxation scheme for persons having income from business [Section 44AD] [W.e.f. A.Y. 2017-18]

The existing provisions of section 44AD provide for a presumptive taxation scheme for an eligible business. Where in case of an eligible assessee engaged in eligible business having total turnover or gross receipts not exceeding rupees one crore, a sum equal to eight per cent. of the total turnover or gross receipts, or as the case may be, a sum higher than the aforesaid sum shall be deemed to be profits and gains of such business chargeable to tax under the head "Profits and gains of business or profession". Under the scheme, the assessee will be deemed to have been allowed the deduction under sections 30 to 38 of the Act. Further, the eligible assessee can report income less than the deemed income of eight per cent. of the total turnover or gross receipts not exceeding rupees one crore provided he maintains books of accounts as per section 44AB. Further in the case of an eligible assessee, so far as the eligible business is concerned, the provisions of Chapter XVII-C shall not apply.

In order to reduce the compliance burden of the small tax payers and facilitate the ease of doing business, it is proposed to increase the threshold limit of one crore rupees specified in the definition of "eligible business" to two crore rupees.

It is also proposed that the expenditure in the nature of salary, remuneration, interest etc. paid to the partner as per clause (b) of section 40 shall not be deductible while computing the income under section 44AD as the said section 40 does not mandate for allowance of any expenditure but puts restriction on deduction of amounts , otherwise allowable under section 30 to 38.

It is also proposed that where an eligible assessee declares profit for any previous year in accordance with the provisions of this section and he declares profit for any of the five consecutive assessment years relevant to the previous year succeeding such previous year not in accordance with the provisions of sub-section (1), he shall not be eligible to claim the benefit of the provisions of this section for five assessment years

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subsequent to the assessment year relevant to the previous year in which the profit has not been declared in accordance with the provisions of sub-section (1). For example, an eligible assessee claims to be taxed on presumptive basis under section 44AD for Assessment Year 2017-18 and offers income of Rs. 8 lakh on the turnover of Rs. 1 crore.

For Assessment Year 2018-19 and Assessment Year 2019-20 also he offers income in accordance with the provisions of section 44AD. However, for Assessment Year 2020-21, he offers income of Rs.4 lakh on turnover of Rs. 1 crore. In this case since he has not offered income in accordance with the provisions of section 44AD for five consecutive assessment years, after Assessment Year 2017-18, he will not be eligible to claim the benefit of section 44AD for next five assessment years i.e. from Assessment Year 2021-22 to 2025-26.

Further as the turnover limit of presumptive taxation scheme has been enhanced to rupees two crore, it is proposed to provide that eligible assessee shall be require to pay advance tax. However, in order to keep the compliance minimum in his case, it is proposed that he may pay advance tax by 15th March of the financial year. 29. Introduction of Presumptive taxation scheme for persons having income from profession [Section 44ADA] [W.e.f. A.Y. 2017-18]

The existing scheme of taxation provides for a simplified presumptive taxation scheme for certain eligible persons engaged in certain eligible business only and not for persons earning professional income. In order to rationalize the presumptive taxation scheme and to reduce the compliance burden of the small tax payers having income from profession and to facilitate the ease of doing business, it is proposed to provide for presumptive taxation regime for professionals.

In this regard, new section 44ADA is proposed to be inserted in the Act to provide for estimating the income of an assessee who is engaged in any profession referred to in sub-section (1) of section 44AA such as legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or any other profession as is notified by the Board in the Official Gazette and whose total gross receipts does not exceed fifty lakh rupees in a previous year, at a sum equal to fifty per cent. of the total gross receipts, or, as the case may be , a sum higher than the aforesaid sum earned by the assessee. The scheme will apply to such resident assessee who is an individual, Hindu undivided family or partnership firm but not Limited Liability partnership firm.

Under the scheme, the assessee will be deemed to have been allowed the deductions under section 30 to 38. Accordingly, the written down value of any asset used for the purpose of the profession of the assessee will be deemed to have been calculated as if the assessee had claimed and had actually been allowed the deduction in respect of depreciation for the relevant assessment years.

It is also proposed that the assessee will not be required to maintain books of account under sub-section (1) of section 44AA and get the accounts audited under section 44AB in respect of such income unless the assessee claims that the profits

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and gains from the aforesaid profession are lower than the profits and gains deemed to be his income under sub-section (1) of section 44ADA and his income exceeds the maximum amount which is not chargeable to income-tax.

Amendments relating to income under the head "Capital Gains"

30. Provision for Tax benefits to Sovereign Gold Bond Scheme, 2015 and Rupee Denominated Bonds [Section 47(viib) and section 48] [W.e.f. A.Y. 2017-18] (i) Sovereign Gold Bond Scheme, 2015

The Government of India has introduced the Sovereign Gold Bond Scheme with the aim of reducing the demand for physical gold so as to reduce the outflow of foreign exchange on account of import of gold. The Gold Bond is a mode for substitution of physical gold and also provides security to the individual investor who invests in Gold for meeting their social obligation.

Accordingly, with a view to providing parity in tax treatment between physical gold and Sovereign Gold Bond, it is proposed to amend Section 47 of the Income-tax Act, so as to provide that any redemption of Sovereign Gold Bond under the Scheme, by an individual shall not be treated as transfer and therefore shall be exempt from tax on capital gains.

It is also proposed to amend section 48 of the Income-tax Act, so as to provide indexation benefits to long terms capital gains arising on transfer of Sovereign Gold Bond to all cases of assessees. (ii) Rupee Denominated Bond

The Reserve Bank of India has recently permitted Indian corporates to issue rupee denominated bonds outside India as a measure to enable the Indian corporates to raise funds from outside India.

Accordingly, with a view to provide relief to non-resident investor who bears the risk of currency fluctuation, it is proposed to amend section 48 of the Act so as to provide that the capital gains, arising in case of appreciation of rupee between the date of issue and the date of redemption against the foreign currency in which the investment is made shall be exempt from tax on capital gains. 31. Rationalization of conversion of a company into Limited Liability Partnership (LLP) [Section 47(xiiib)] [W.e.f. A.Y. 2017-18]

Existing provisions of clause (xiiib) of Section 47 provides that conversion of a private limited or unlisted public company into Limited Liability Partnership (LLP) shall not be regarded as transfer, if certain conditions are fulfilled, which, inter alia, include a condition that the company's gross receipts, turnover or total sales in any of the preceding three years did not exceed Rs.60 lakh.

It is proposed to amend the said section so as to provide that, for availing tax-neutral conversion, in addition to the existing conditions, the value of the total assets in the books of accounts of the company in any of the three previous years preceding

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the previous year in which the conversion takes place, should not exceed five crore rupees. 32. Consolidation of 'plans' within a 'scheme' of mutual fund [Section 47(xviii)] [W.e.f. A.Y. 2017-18]

Under the existing provisions of section 47(xviii), any transfer by a unit holder of a capital asset, being a unit or units, held by him in the consolidating scheme of a mutual fund, made in consideration of the allotment to him of a capital asset, being a unit or units, in the consolidated scheme of the mutual fund is not chargeable to tax.

Security Exchange Board of India (SEBI) has issued guidelines for consolidation of mutual fund plans within a scheme. In view of this, it is proposed to extend the tax exemption, available on merger or consolidation of mutual fund schemes, to the merger or consolidation of different plans in a mutual fund scheme. For this purpose, it is proposed to amend Section 47 so as to provide that any transfer by a unit holder of a capital asset, being a unit or units, held by him in the consolidating plan of a mutual fund scheme, made in consideration of the allotment to him of a capital asset, being a unit or units, in the consolidated plan of that scheme of the mutual fund shall not be considered transfer for capital gain tax purposes and thereby shall not be chargeable to tax. 33. Rationalization of Section 50C in case sale consideration is fixed under agreement executed prior to the date of registration of immovable property [Section 50C] [W.e.f. A.Y. 2017-18]

Under the existing provisions contained in Section 50C, in case of transfer of a capital asset being land or building on both, the value adopted or assessed by the stamp valuation authority for the purpose of payment of stamp duty shall be taken as the full value of consideration for the purposes of computation of capital gains. The Income Tax Simplification Committee (Easwar Committee) has in its first report, pointed out that this provision does not provide any relief where the seller has entered into an agreement to sell the property much before the actual date of transfer of the immovable property and the sale consideration is fixed in such agreement, whereas similar provision exists in section 43CA of the Act i.e. when an immovable property is sold as a stock-in-trade.

It is proposed to amend the provisions of section 50C so as to provide that where the date of the agreement fixing the amount of consideration for the transfer of immovable property and the date of registration are not the same, the stamp duty value on the date of the agreement may be taken for the purposes of computing the full value of consideration.

It is further proposed to provide that this provision shall apply only in a case where the amount of consideration referred to therein, or a part thereof, has been paid by way of an account payee cheque or account payee bank draft or use of electronic clearing system through a bank account, on or before the date of the agreement for the transfer of such immovable property.

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34. Tax incentives for start-ups [Section 54EE and 54GB] [W.e.f. A.Y. 2017-18] With a view to providing an impetus to start-ups and facilitate their growth in the

initial phase of their business, it is proposed to provide a deduction of one hundred percent of the profits and gains derived by an eligible start-up from a business involving innovation development, deployment or commercialization of new products, processes or services driven by technology or intellectual property.

The benefit of hundred percent deduction of the profits derived from such business shall be available to an eligible start-up which is setup before 01.04.2019.

Further, in order to promote the start-up ecosystem in the country, it is envisaged in 'start-up India Action Plan' to establish a Fund of Funds which intends to raise Rs 2500 crores annually for four years to finance the start-ups.

Keeping this objective in view, it is proposed to insert a new Section 54EE to provide exemption from capital gains tax if the long term capital gains proceeds are invested by an assessee in units of such specified fund, as may be notified by the Central Government in this behalf, subject to the condition that the amount remains invested for three years failing which the exemption shall be withdrawn. The investment in the units of the specified fund shall be allowed up to Rs. 50 lakh

The existing provisions of section 54GB provide exemption from tax on long term capital gains in respect of the gains arising on account of transfer of a residential property, if such capital gains are invested in subscription of shares of a company which qualifies to be a small or medium enterprise under the Micro, Small and Medium Enterprises Act, 2006 subject to other conditions specified therein.

With an objective to provide relief to an individual or HUF willing to setup a start-up company by selling a residential property to invest in the shares of such company, it is proposed to amend section 54GB so as to provide that long term capital gains arising on account of transfer of a residential property shall not be charged to tax if such capital gains are invested in subscription of shares of a company which qualifies to be an eligible start-up subject to the condition that the individual or HUF holds more than fifty per cent shares of the company and such company utilises the amount invested in shares to purchase new asset before due date of filing of return by the investor.

The existing provision of section 54GB requires that the company should invest the proceeds in the purchase of new asset being new plant and machinery but does not include, inter-alia, computers or computer software.

With a view to avoid the incidence of the aforesaid condition on start-ups where computers or computer software form the core asset base owing to nature of business activity, it is proposed to amend section 54GB so as to provide that the expression "new asset" includes computers or computer software in case of technology driven start-ups so certified by the Inter-Ministerial Board of Certification notified by the Central Government in the official Gazette.

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35. Cost of acquisition of non-compete fee in case of profession [Section 55] [W.e.f. A.Y. 2017-18]

It is proposed to amend section 55 so as to provide that the 'cost of acquisition' and 'cost of improvement' for working out "Capital gains" on capital receipts arising out of transfer of right to carry on any profession shall also be taken as 'nil'. For details see para 17.

Amendments relating to income under the head "Income from Other Sources"

36. Rationalization of section 56 of the Income-tax Act [Section 56(2)(vii)] [W.e.f. A.Y. 2017-18]

The existing provisions of clause(vii) of sub-section 2 of section 56 of the Act provide for chargeability of income from other sources in case any money, immovable property or other property with or without consideration in excess of Rs 50,000 is received by an assessee being an individual or an Hindu undivided family (HUF). The provisions also apply where shares of a company are received as a consequence of demerger or amalgamation of a company. Such a transaction is not regarded as transfer where the recipient is a firm or a company.

With a view to bring uniformity in tax treatment, it is proposed to amend the Act so as to provide that any shares received by an individual or HUF as a consequence of demerger or amalgamation of a company shall not attract the provisions of clause (vii) of sub-section (2) of section 56.

Amendments relating to deductions to be made in computing total income

37. Time limit for carry forward and set off of loss under section 73A of the Income-tax Act [Section 73A] [W.r.e.f. A.Y. 2016-17]

The existing provisions of section 73A of the Act provide that any loss, computed in respect of any specified business referred to in section 35AD shall not be set off except against profits and gains, if any, of any other specified business. Further, section 80 of the Act inter-alia provides that a loss which has not been determined in pursance of return filed in accordance with the provisions of sub-section (3) of section 130, shall not be carried forward and set-off under sub-section (1) of section 72 or sub-section (2) of section 73 or sub-section (1) or sub-section (3) or section 74 or sub-section 74A.

In accordance with the scheme of the Act, this loss is to be allowed if the return is filed within the specified time i.e. by the due date of filing of the return of the income as provided in section 80 for other losses determined under the Act.

Accordingly, it is proposed to amend section 80 so as to provide that the loss determined as per section 73A of the Act shall not be allowed to be carried forward

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and set off if such loss has not been determined in pursuance of a return filed in accordance with the provisions of sub-section (3) of section 139.

It is also proposed to amend the said sub-section (3) of section 139 so as to give reference of sub-section (2) of section 73A in the said sub-section.

38. Amount received by the nominee in respect of contribution to pension scheme on the death of the assessee to be exempt [Section 80CCD] [W.e.f. A.Y. 2017-18]

The amount received by the nominee, on the death of the assessee shall not be deemed to be the income of the nominee.

39. Incentives for Promoting Housing for All [Section 80EE] [W.e.f. A.Y. 2017-18]

The existing provisions of section 80EE provide a deduction of up to 1 lakh rupees in respect of interest paid on loan by an individual for acquisition of a residential house property. This benefit is available for the two assessment years beginning on the 1stday of April 2014 and on the 1stday of April 2015.

In furtherance of the goal of the Government of providing 'housing for all', it is proposed to incentivise first-home buyers availing home loans, by providing additional deduction in respect of interest on loan taken for residential house property from any financial institution up to Rs. 50,000. This incentive is proposed to be extended to a house property of a value less than fifty lakhs rupees in respect of which a loan of an amount not exceeding thirty five lakh rupees has been sanctioned during the period from the 1st day of April, 2016 to the 31st day of March, 2017. It is also proposed to extend the benefit of deduction till the repayment of loan continues.

The deduction under the proposed section is over and above the limit of Rs 2,00,000 provided for a self-occupied property under section 24 of the Act.

40. Rationalization of limit of deduction allowable in respect of rents paid [Section 80GG] [W.e.f. A.Y. 2017-18]

The existing provisions of Section 80GG provide for a deduction of any expenditure incurred by an individual in excess of ten per cent of his total income towards payment of rent in respect of any furnished or unfurnished accommodation occupied by him for the purposes of his own residence if he is not granted house rent allowance by his employer, to the extent such excess expenditure does not exceed two thousand rupees per month or twenty-five per cent of his total income for the year, whichever is less, subject to other conditions as prescribed therein.

In order to provide relief to the individual tax payers, it is proposed to amend section 80GG so as to increase the maximum limit of deduction from existing Rs. 2000 per month to Rs. 5000 per month.

41. Special provision in respect of specified business [Section 80-IAC] [W.e.f. A.Y. 2017-18]

See para 34.

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42. Deduction in respect of profits and gains from housing projects [Section 80-IBA] [W.e.f. A.Y. 2017-18]

With a view to incentivise affordable housing sector as a part of larger objective of 'Housing for All', it is proposed to amend the Income-tax Act so as to provide for hundred per cent deduction of the profits of an assessee developing and building affordable housing projects if the housing project is approved by the competent authority before the 31st March, 2019 subject to certain conditions which inter alia, include:- (i) The project is completed within a period of three years from the date of

approval, (ii) The project is on a plot of land measuring not less than 1000 sq. metres

where the project is within 25 km from the municipal limits of four metros namely Delhi, Mumbai, Chennai & Kolkata and in any other area, it is measuring not less than 2000 sq. metres where the size of the residential unit in the said areas is not more than thirty sq. metres and sixty sq. metres, respectively,

(iii) where residential unit is allotted to an individual, no such unit shall be allotted to him or any member of his family, etc

43. Tax incentive for employment generation [Section 80JJAA] [W.e.f. A.Y. 2017-18]

The existing provisions of Section 80JJAA provide for a deduction of thirty percent of additional wages paid to new regular workmen in a factory for three years. The provisions apply to the business of manufacture of goods in a factory where 'workmen' are employed for not less than three hundred days in a previous year. Further, benefits are allowed only if there is an increase of at least ten percent in total number of workmen employed on the last day of the preceding year.

With a view to extend this employment generation incentive to all sectors, it is proposed to provide that the deduction under the said provisions shall be available in respect of cost incurred on any employee whose total emoluments are less than or equal to twenty five thousand rupees per month. No deduction, however, shall be allowed in respect of cost incurred on those employees, for whom the entire contribution under Employees' Pension Scheme notified in accordance with Employees' Provident Fund and Miscellaneous Provisions Act, 1952, is paid by the Government.

It is further proposed to relax the norms for minimum number of days of employment in a financial year from 300 days to 240 days and also the condition of ten per cent increase in number of employees every year is proposed to be done away with so that any increase in the number of employees will be eligible for deduction under the provision.

It is also proposed to provide that in the first year of a new business, thirty percent of all emoluments paid or payable to the employees employed during the previous year shall be allowed as deduction.

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Amendments relating to rebate in income tax

44. Rationalization of limit of rebate [Section 87A] [W.e.f. A.Y. 2017-18] The existing provisions of section 87A of Income-tax Act, provide for a rebate of

an amount equal to hundred per cent of such income-tax or an amount of two thousand rupees, whichever is less, from the amount of income-tax to an individual resident in India whose total income does not exceed five hundred thousand rupees.

With the objective to provide relief to resident individuals in the lower income slab, it is proposed to amend section 87A so as to increase the maximum amount of rebate available under this provision from existing Rs.2,000 to Rs.5,000.

Amendments relating to assessment, reassessment and recomputation

45. Filing of return of Income [Section 139] [W.e.f. A.Y. 2017-18] In order to rationalise the time allowed for filing of returns, completion of

proceedings, and realization of revenue without undue compliance burden on the taxpayer, and to promote the culture of compliance, it is proposed to amend the provisions of the Act.

It is proposed to amend the sixth proviso to sub-section (1) of the section 139 to include that if a person during the previous year earns income which is exempt under clause (38) of section 10 and income of such person without giving effect to the said clause of section 10 exceeds the maximum amount which is not chargeable to tax, shall also be liable to file return of income for the previous year within the due date.

It is also proposed to substitute sub-section (4) of the aforesaid section to provide that any person who has not furnished a return within the time allowed to him under sub-section (1), may furnish the return for any previous year at any time before the end of the relevant assessment year or before the completion of the assessment, whichever is earlier.

It is also proposed to substitute sub-section (5) of the aforesaid section so as to provide that if any person, having furnished a return under sub-section (1) or under sub-section (4), or in a return furnished in response to notice issued under sub-section (1) of section 142, discovers any omission or any wrong statement therein, he may furnish a revised return at any time before the expiry of one year from the end of the relevant assessment year or before the completion of the assessment, whichever is earlier.

It is also proposed to omit clause (aa) of the Explanation to sub-section (9) of aforesaid section to provide that a return which is otherwise valid would not be treated defective merely because self-assessment tax and interest payable in accordance with the provisions of section 140A has not been paid on or before the date of furnishing of the return.

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46. Processing under section 143(1) be mandated before assessment [Section 143(1D)] [W.e.f. A.Y. 2017-18]

Under the existing provision of sub-section (1D) of section 143, processing of a return is not necessary where a notice has been issued to the assessee under sub-section (2) of the said section.

It is proposed to amend sub-section (1D) of the aforesaid section to provide that before making an assessment under sub-section (3) of section 143, a return shall be processed under sub-section (1) of section 143. 47. Rationalisation of time limit for assessment, reassessment and recomputation [Section 153] [W.e.f. 1-6-2016]

The existing statutory time limit for completion of assessment proceedings is two years from the end of the assessment year in which the income was first assessable. It is desirable that proceedings under the Act are finalised more expeditiously as digitisation of processes within the Department has enhanced its efficiency in handling workload. In order to simplify the provisions of existing section 153 by retaining only those provisions that are relevant to the current provisions of the Act, section 153 is proposed to be substituted with the following changes in time limit from the existing time limits: (i) the period, for completion of assessment under section 143 or section 144 be

changed from existing two years to twenty-one months from the end of the assessment year in which the income was first assessable;

(ii) the period for completion of assessment under section 147 be changed from existing one year to nine months from the end of the financial year in which the notice under section 148 was served;

(iii) the period for completion of fresh assessment in pursuance of an order under section 254 or section 263 or section 264, setting aside or cancelling an assessment be changed from existing one year to nine months from the end of the financial year in which the order under section 254 is received by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner, or the order under section 263 or section 264 is passed by the Principal Commissioner or Commissioner

It is further proposed to provide that the period for giving effect to an order, under sections 250 or 254 or 260 or 262 or 263 or 264 or an order of the Settlement Commission under sub-section (4) of section 245D, where effect can be given wholly or partly otherwise than by making a fresh assessment or reassessment shall be three months from the end of the month in which order is received or passed, as the case may be, by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner. It is also proposed that in a case where it is not possible for the Assessing Officer to give effect to such order within the aforesaid period, for reasons beyond his control, the Principal Commissioner or Commissioner on receipt of such reasons in writing from the Assessing Officer, if satisfied, may allow additional time of six months to give effect to the said order. However, in respect of

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cases pending as on 1stJune 2016, the time limit for passing such order is proposed to be extended to 31.3.2017.

It is also proposed that where the assessment, reassessment or recomputation is made on the assessee or any person in consequence of or to give effect to any finding or direction contained in an order under section 250, 254, 260, 262, 263, or section 264 or in an order of any court in a proceeding otherwise than by way of appeal or reference under the Income-tax Act, then such assessment, reassessment or recomputation shall be made on or before the expiry of twelve months from the end of the month in which such order is received by the Principal Commissioner or Commissioner. However, for cases pending as on 1.6.2016, the time limit for taking requisite action is proposed to be 31.3.2017 or twelve months from the end of the month in which such order is received, whichever is later.

It is also proposed that where an assessment is made on a partner of the firm in consequence of an assessment made on the firm under section 147, such assessment be made on or before the expiry of twelve months from the end of the month in which the assessment order in the case of the firm is passed. However, for cases pending as on 1.6.2016, the time limit for taking requisite action is proposed to be 31.3.2017 or twelve months from the end of the end of the month in which order in case of firm is passed, whichever is later.

It is also proposed to make consequential changes in time limit for completion of assessment or reassessment by the Assessing Officer in accordance with the extension of time limit provided to the Transfer Pricing Officer in certain cases by amendment in sub-section (3A) to section 92CA. 48. Rationalisation of time limit for assessment in search cases [Sections 153A, Section 153C] [W.e.f. 1-6-2016]

It is proposed to amend the time limit for completion of assessments made under section 153A or section 153C cases to bring it in sync with the new time limits provided for other cases. In order to simplify the provisions of existing section 153B by retaining only those provisions that are relevant to the current provisions of the Act, section 153B is proposed to be substituted with the following changes in time limit from the existing time limits as under: (i) The limitation for completion of assessment under section 153A, in respect of

each assessment year falling within six assessment years referred to in clause (b) of sub-section (1) of section 153A and in respect of the assessment year relevant to the previous year in which search is conducted under section 132 or requisition is made under section 132A be changed from existing two years to twenty-one months from the end of the financial year in which the last of the authorisations for search under section 132 or for requisition under section 132A was executed.

(ii) The limitation for completion of assessment in case of other person referred to in section 153C shall be changed from existing two years to twenty-one months from the end of the financial year in which the last of the authorisation

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for search under Section 132 or requisition under section 132A was executed or nine months (changed from the existing one year) from the end of the financial year in which the books of account or documents or assets seized or requisition are handed over under section 153C to the Assessing Officer having jurisdiction over such other person, whichever is later.

The provisions of section 153B as they stood immediately before their amendment by the Finance Act, 2016, shall apply to and in relation to any order of assessment, reassessment or recomputation made before the 1 stday of June, 2016. 49. Assumption of jurisdiction of Assessing Officer [Section 124(3)(c)] [W.e.f. 1-6-2016]

The existing sub-section (3) of the section 124, inter-alia, provides that no person shall be entitled to call in question the jurisdiction of an Assessing Officer in a case where return is filed under section 139, after the expiry of one month from the date on which he was served with a notice issued under sub-section (1) of section 142 or sub-section (2) of section 143 or after the completion of the assessment, whichever is earlier. Currently, this provision does not specifically refer to notices issued under section 153A or section 153C which relate to assessment in cases where a search and seizure action has been taken or cases connected to such cases.

Instances have come to notice wherein the jurisdiction of an Assessing Officer in such cases have been called into question at the appellate stages, despite the fact that order passed under section 153A or 153C is read with section 143(3) of the Act. In order to remove any ambiguity in such cases it is proposed to amend sub-section (3) of section 124 to specifically provide that cases where search is initiated under section 132 or books of accounts, other documents or any assets are requisitioned under section 132A, no person shall be entitled to call into question the jurisdiction of an Assessing Officer after the expiry of one month from the date on which he was served with a notice under sub-section (1) of section 153A or sub-section (2) of section 153C or after the completion of the assessment, whichever is earlier.

Amendments relating to Transfer Pricing

50. BEPS action plan - Country-By-Country Report and Master file [Section 92D] [W.e.f. A.Y. 2017-18]

In order to implement the international consensus, it is proposed to provide a specific reporting regime in respect of CbC reporting and also the master file. It is proposed to include essential elements in the Act while remaining aspects can be detailed in rules. The elements relating to CbC reporting requirement and matters related to it proposed to be included through amendment of the Act are:— (i) the reporting provision shall apply in respect of an international group having

consolidated revenue above a threshold to be prescribed. (ii) the parent entity of an international group, if it is resident in India shall be

required to furnish the report in respect of the group to the prescribed

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authority on or before the due date of furnishing of return of income for the Assessment Year relevant to the Financial Year (previous year) for which the report is being furnished;

(iii) the parent entity shall be an entity which is required to prepare consolidated financial statement under the applicable laws or would have been required to prepare such a statement, had equity share of any entity of the group been listed on a recognized stock exchange in India;

(iv) every constituent entity in India, of an international group having parent entity that is not resident in India, shall provide information regarding the country or territory of residence of the parent of the international group to which it belongs. This information shall be furnished to the prescribed authority on or before the prescribed date;

(v) the report shall be furnished in prescribed manner and in the prescribed form and would contain aggregate information in respect of revenue, profit & loss before Income-tax, amount of Income-tax paid and accrued, details of capital, accumulated earnings, number of employees, tangible assets other than cash or cash equivalent in respect of each country or territory along with details of each constituent's residential status, nature and detail of main business activity and any other information as may be prescribed. This shall be based on the template provided in the OECD BEPS report on Action Plan 13;

(vi) an entity in India belonging to an international group shall be required to furnish CbC report to the prescribed authority if the parent entity of the group is resident;—

(a) in a country with which India does not have an arrangement for exchange of the CbC report; or

(b) such country is not exchanging information with India even though there is an agreement; and

(c) this fact has been intimated to the entity by the prescribed authority; (vii) If there are more than one entities of the same group in India, then the group

can nominate (under intimation in writing to the prescribed authority) the entity that shall furnish the report on behalf of the group. This entity would then furnish the report;

(viii) If an international group, having parent entity which is not resident in India, had designated an alternate entity for filing its report with the tax jurisdiction in which the alternate entity is resident, then the entities of such group operating in India would not be obliged to furnish report if the report can be obtained under the agreement of exchange of such reports by Indian tax authorities;

(ix) The prescribed authority may call for such document and information from the entity furnishing the report for the purpose of verifying the accuracy as it may specify in notice. The entity shall be required to make submission within thirty days of receipt of notice or further period if extended by the prescribed authority, but extension shall not be beyond 30 days;

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(x) For non-furnishing of the report by an entity which is obligated to furnish it, a graded penalty structure would apply:—

(a) if default is not more than a month, penalty of Rs. 5000/- per day applies; (b) if default is beyond one month, penalty of Rs 15000/- per day for the

period exceeding one month applies; (c) for any default that continues even after service of order levying penalty

either under (a) or under (b), then the penalty for any continuing default beyond the date of service of order shall be @ Rs 50,000/- per day;

(xi) In case of timely non-submission of information before prescribed authority when called for, a penalty of Rs5000/- per day applies. Similar to the above, if default continues even after service of penalty order, then penalty of Rs.50,000/- per day applies for default beyond date of service of penalty order;

(xii) If the entity has provided any inaccurate information in the report and,— (a) the entity knows of the inaccuracy at the time of furnishing the report but

does not inform the prescribed authority; or (b) the entity discovers the inaccuracy after the report is furnished and fails to

inform the prescribed authority and furnish correct report within a period of fifteen days of such discovery; or

(c) the entity furnishes inaccurate information or document in response to notice of the prescribed authority, then penalty of Rs.500,000/- applies;

(xiii) The entity can offer reasonable cause defence for non-levy of penalties mentioned above. The proposed amendment in the Act in respect of maintenance of master file and furnishing it are:—

(i) the entities being constituent of an international group shall, in addition to the information related to the international transactions, also maintain such information and document as is prescribed in the rules. The rules shall thereafter prescribe the information and document as mandated for master file under OECD BEPS Action 13 report;

(ii) the information and document shall also be furnished to the prescribed authority within such period as may be prescribed and the manner of furnishing may also be provided for in the rules;

(iii) for non-furnishing of the information and document to the prescribed authority, a penalty of Rs. 5 lakh shall be leviable. However, reasonable cause defence against levy of penalty shall be available to the entity.

As indicated above, the CbC reporting requirement for a reporting year does not apply unless the consolidated revenues of the preceding year of the group, based on consolidated financial statement, exceeds a threshold to be prescribed. The current international consensus is for a threshold of € 750 million equivalent in local currency. This threshold in Indian currency would be equivalent to Rs. 5395 crores (at current rates). Therefore, CbC reporting for an international group having Indian parent, for

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the previous year 2016-17, shall apply only if the consolidated revenue of the international group in previous year 2015-16 exceeds Rs. 5395 crore (the equivalent would be determinable based on exchange rate as on the last day of previous year 2015-16).

Amendments relating to tax in special cases

51. Clarification regarding the definition of the term 'unlisted securities' [Section 112(1)(c)] [W.e.f. A.Y. 2017-18]

Existing provisions of clause (c) of sub-section (1) of section 112 provide tax rate of ten per cent for long-term capital gain arising from transfer of securities, whether listed or unlisted. The expression "securities" for the purpose of the said provision has the same meaning as in clause (h) of section 2 of the Securities Contracts (Regulations) Act, 1956 ('SCRA'). A view has been taken by the courts that shares of a private company are not "securities".

With a view to clarify the position so far as taxability is concerned, it is proposed to amend the provisions of clause (c) of sub-section (1) of section 112 of the Income- tax Act, so as to provide that long-term capital gains arising from the transfer of a capital asset being shares of a company not being a company in which the public are substantially interested, shall be chargeable to tax at the rate of 10 per cent. 52. Tax on income of certain domestic companies [Section 115BA] [W.e.f. A.Y. 2017-18]

See under rates of income tax. 53. Rationalization of taxation of income by way of dividend [Section 115BBDA] [W.e.f. A.Y. 2017-18]

Under the existing provisions of clause (34) of section 10 of the Act, dividend which suffer dividend distribution tax (DDT) under section 115-O is exempt in the hands of the shareholder. Under section 115-O dividends are taxed only at the rate of fifteen percent at the time of distribution in the hands of company declaring dividends. This creates vertical inequity amongst the tax payers as those who have high dividend income are subjected to tax only at the rate of 15% whereas such income in their hands would have been chargeable to tax at the rate of 30%.

With a view to rationalise the tax treatment provided to income by way of dividend, it is proposed to amend the Income-tax Act so as to provide that any income by way of dividend in excess of Rs. 10 lakh shall be chargeable to tax in the case of an individual, Hindu undivided family (HUF) or a firm who is resident in India, at the rate of ten percent. The taxation of dividend income in excess of ten lakh rupees shall be on gross basis. 54. Exemption from Dividend Distribution Tax (DDT) on distribution made by an SPV to Business Trust [W.e.f. 1-6-2016]

In order to rationalize the taxation regime for business trusts (REITs and Invits) and their investors, it is proposed to provide a special dispensation and exemption

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from levy of dividend distribution tax. The salient features of the proposed dispensation are:— (a) exemption from levy of DDT in respect of distributions made by SPV to the

business trust; (b) such dividend received by the business trust and its investor shall not be

taxable in the hands of trust or investors; (c) the exemption from levy of DDT would only be in the cases where the

business trust either holds 100% of the share capital of the SPV or holds all of the share capital other than that which is required to be held by any other entity as part of any direction of any Government or specific requirement of any law to this effect or which is held by Government or Government bodies; and

(d) the exemption from the levy of DDT would only be in respect of dividends paid out of current income after the date when the business trust acquires the shareholding referred in (c) above in the SPV. The dividends paid out of accumulated and current profits upto this date shall be liable for levy of DDT as and when any dividend out of these profits is distributed by the company either to the business trust or any other shareholder.

55. Clarification regarding set off losses against deemed undisclosed income [Section 115BBE] [W.e.f. A.Y. 2017-18]

Section 115BBE of the Act, inter-alia provides that the income relating to section 68 or section 69 or section 69A or section 69B or section 69C or section 69D is taxable at the rate of thirty per cent and further provides that no deduction in respect of any expenditure or allowances in relation to income referred to in the said sections shall be allowable.

Currently, there is uncertainty on the issue of set-off of losses against income referred in section 115BBE of the Act. The matter has been carried to judicial forums and courts in some cases has taken a view that losses shall not be allowed to be set-off against income referred to in section 115BBE. However, the current language of section 115BBE of the Act does not convey the desired intention and as a result the matter is litigated. In order to avoid unnecessary litigation, it is proposed to amend the provisions of the sub-section (2) of section 115BBE to expressly provide that no set off of any loss shall be allowable in respect of income under the sections 68 or section 69 or section 69A or section 69B or section 69C or section 69D. 56. Tax on Income from 'Patents' [Section 115BBF] [W.e.f. A.Y. 2017-18]

It is proposed to insert new section 115BBF to provide that where the total income of the eligible assessee income includes any income by way of royalty in respect of a patent developed and registered in India, then such royalty shall be taxable at the rate of ten per cent (plus applicable surcharge and cess) on the gross amount of royalty. No expenditure or allowance in respect of such royalty income shall be allowed under the Act.

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For the purpose of this concessional tax regime an eligible assessee means a person resident in India, who is the true and first inventor of the invention and whose name is entered on the patent register as the patentee in accordance with Patents Act, 1970 and includes evey such person, being the true and the first inventor of the invention, where more than one person is registered uas pententee under Patents Act, 1970 in respect of that patent. 57. Applicability of Minimum Alternate Tax (MAT) on foreign companies for the period prior to 01.04.2015 [Section 115JB] [W.r.e.f. A.Y. 2001-02]

In view of the recommendations of the committee headed by Justice A.P. Shah and with a view to provide certainty in taxation of foreign companies, it is proposed to amend the Income-tax Act so as to provide that with effect from 01.04.2001, the provisions of section 115JB shall not be applicable to a foreign company if— (i) the assessee is a resident of a country or a specified territory with which India

has an agreement referred to in sub-section (1) of section 90 or the Central Government has adopted any agreement under sub-section (1) of section 90A and the assesse does not have a permanent establishment in India in accordance with the provisions of such Agreement; or

(ii) the assessee is a resident of a country with which India does not have an agreement of the nature referred to in clause (i) above and the assessee is not required to seek registration under any law for the time being in force relating to companies.

58. Tax Incentives to International Financial Services Centre [Section 115JB] [W.e.f. A.Y. 2017-18]

Under the existing provisions of the 115JB in case of a company, if the tax payable on the total income as computed under the Income-tax Act, is less than eighteen and one-half per cent of its book profit, such book profit shall be deemed to be the total income of the assessee and the Minimum Alternate Tax (MAT) payable by the assessee for the relevant previous year shall be eighteen and one-half per cent of such book profit.

With a view to provide a competitive tax regime to International Financial Services Centre, it is proposed to amend section 115JB so as to provide that in case of a company, being a unit located in International Financial Services Centre and deriving its income solely in convertible foreign exchange, the Minimum Alternate Tax shall be chargeable at the rate of nine per cent.

Amendments relating to tax on distributed profits

59. Tax Incentives to International Financial Services Centre [Section 115-O] [W.e.f. A.Y. 2017-18]

It is proposed to amend section 115-O so as to provide that no tax on distributed profits shall be chargeable in respect of the total income of a company being a unit located in International Financial Services Centre, deriving income solely in

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convertible foreign exchange, for any assessment year on any amount declared, distributed or paid by such company, by way of dividends (whether interim or otherwise) on or after the 1st day of April, 2017 out of its current income, either in the hands of the company or the person receiving such dividend. 60. Tax on distributed income to shareholder [Section 115QA] [W.e.f. 1-6-2016]

In order to provide clarity and remove any ambiguity on the above issues, it is proposed to amend section 115QA to provide that the provisions of this section shall apply to any buy back of unlisted share undertaken by the company in accordance with the provisions of the law relating to the Companies and not necessarily restricted to section 77A of the Companies Act, 1956. It is further proposed to provide that for the purpose of computing distributed income, the amount received by the Company in respect of the shares being bought back shall be determined in the prescribed manner. The rules would thereafter be framed to provide for manner of determination of the amount in various circumstances including shares being issued under tax neutral reorganisations and in different tranches.

Special provisions relating to tax on accreted income of certain trusts and institutions [Chapter XII-EB]

61. Levy of tax where the charitable institution ceases to exist or converts into a non-charitable organization [Section 115TD to 115TF] [W.e.f. 1-6-2016]

The existing provisions of section 2(24) of the Act define "Income" in an inclusive manner. Any voluntary contribution received by a charitable trust or institution or a fund is included in the definition of income. Sections 11 and 12 of the Act provide for exemption to trusts or institutions in respect of income derived from property held under trust and voluntary contributions, subject to various conditions contained in the said sections. The primary condition for grant of exemption is that the income derived from property held under trust should be applied for the charitable purposes, and where such income cannot be applied during the previous year, it has to be accumulated and invested in the modes prescribed and applied for such purposes in accordance with various conditions provided in the section. If the accumulated income is not applied in accordance with the conditions provided in the said section within a specified time, then such income is deemed to be taxable income of the trust or the institution. Section 12AA provides for registration of the trust or institution which entitles them to be able to get the benefit of sections 11 and 12. It also provides the circumstances under which the registration can be cancelled. Section 13 of the Act provides for the circumstances under which exemption under section 11 or 12 in respect of whole or part of income would not be available to a trust or institution.

A society or a company or a trust or an institution carrying on charitable activity may voluntarily wind up its activities and dissolve or may also merge with any other charitable or non-charitable institution, or it may convert into a non-charitable organization. In such a situation, the existing law does not provide any clarity as to how the assets of such a charitable institution shall be dealt with. Under provisions of

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section 11 certain amount of income of prior period can be brought to tax on failure of certain conditions. However, there is no provision in the Act which ensure that the corpus and asset base of the trust accreted over period of time, with promise of it being used for charitable purpose, continues to be utilised for charitable purposes and is not used for any other purpose. In the absence of a clear provision, it is always possible for charitable institutions to transfer assets to a non-charitable institution. There is a need to ensure that the benefit conferred over the years by way of exemption is not misused and to plug the gap in law that allows the charitable trusts having built up corpus/wealth through exemptions being converted into non-charitable organisation with no tax consequences.

In order to ensure that the intended purpose of exemption availed by trust or institution is achieved, a specific provision in the Act is required for imposing a levy in the nature of an exit tax which is attracted when the organization is converted into a non-charitable organization or gets merged with a non-charitable organization or does not transfer the assets to another charitable organisation.

Accordingly, it is proposed to amend the provisions of the Act and introduce a new Chapter to provide for levy of additional income-tax in case of conversion into, or merger with, any non-charitable form or on transfer of assets of a charitable organisation on its dissolution to a non-charitable institution. The elements of the regime are: (i) The accretion in income (accreted income) of the trust or institution shall be

taxable on conversion of trust or institution into a form not eligible for registration u/s 12 AA or on merger into an entity not having similar objects and registered under section 12AA or on non-distribution of assets on dissolution to any charitable institution registered u/s 12AA or approved under section 10(23C) within a period twelve months from dissolution.

(ii) Accreted income shall be amount of aggregate of total assets as reduced by the liability as on the specified date. The method of valuation is proposed to be prescribed in rules. The asset and the liability of the charitable organisation which have been transferred to another charitable organisation within specified time will be excluded while calculating accreted income.

(iii) The taxation of accreted income shall be at the maximum marginal rate. (iv) This levy shall be in addition to any income chargeable to tax in the hands of

the entity. (v) This tax shall be final tax for which no credit can be taken by the trust or

institution or any other person, and like any other additional tax, it shall be leviable even if the trust or institution does not have any other income chargeable to tax in the relevant previous year.

(vi) In case of failure of payment of tax within the prescribed time a simple interest @ 1% per month or part of it shall be applicable for the period of non-payment.

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(vii) For the purpose of recovery of tax and interest, the principal officer or the trustee and the trust or the institution shall be deemed to be assessee in default and all provisions related to the recovery of taxes shall apply. Further, the recipient of assets of the trust, which is not a charitable organisation, shall also be liable to be held as assessee in default in case of non-payment of tax and interest. However, the recipient's liability shall be limited to the extent of the assets received.

Amendments relating to TDS and TCS

62. Rationalization of provisions relating to tax deduction at source (TDS) [W.e.f. 1-6-2016]

Under the scheme of deduction of tax at source as provided in the Act, every person responsible for payment of any specified sum to any person is required to deduct tax at source at the prescribed rate and deposit it with the Central Government within specified time. However, no deduction is required to be made if the payments do not exceed prescribed threshold limit.

In order to rationalise the rates and base for TDS provisions, the existing threshold limit for deduction of tax at source and the rates of deduction of tax at source are proposed to be revised as mentioned in table A and table B respectively.

Table A

Increase in threshold limit of deduction of tax at source on various payments mentioned in the relevant sections of the Act

Present Section

Heads Existing Threshold Limit (Rs.)

Proposed Threshod Limit (Rs.)

192A Payment of accumulated balance due to an employee

30,000 50,000

194BB Winnings from Horse Race 5,000 10,000 194C Payments to Contractors Aggregate annual

limit of 75,000 Aggregate annual limit of 1,00,000

194LA Payment of Compensation on acquisition of certain Immovable Property

2,00,000 2,50,000

194D Insurance commission 20,000 15,000 194G Commission on sale of lottery

tickets 1,000 15,000

194H Commission or brokerage 5,000 15,000

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Table B

Revision in rates of deduction of tax at source on various payments mentioned in the relevant sections of the Act

Present Section

Heads Existing Rate of TDS (%)

Proposed Rate of TDS (%)

194DA Payment in respect of Life Insurance Policy

2% 1%

194EE Payments in respect of NSS Deposits

20% 10%

194D Insurance commission Rate in force (10%)

5%

194G Commission on sale of lottery tickets

10% 5%

194H Commission or brokerage 10% 5%

The following provisions which are not in operation are proposed to be omitted as detailed in Table C.

Table C

Certain non-operational provisions to be omitted

Present Section

Heads Proposal

194K Income in respect of Units To be omitted w.e.f 01.06.2016

194L Payment of Compensation on acquisition of Capital Asset

To be omitted w.e.f 01.06.2016

63. Enabling of Filing of Form 15G/15H for rental payments [Section 197A] [1-6-2016]

The provision of sub-section 194-I of the Act, inter alia, provides for tax deduction at source (TDS) for payments in the nature of rent beyond a threshold limit. The existing provisions provide threshold of Rs. 1,80,000 per financial year for deduction of tax under this section. In spite of providing higher threshold for deduction tax under this section, there may be cases where the tax payable on recipient's total income, including rental payments, will be nil. The existing provisions of section 197A of the Income-tax Act, inter alia provide that tax shall not be deducted, if the recipient of certain payments on which tax is deductible furnishes to the payer a self- declaration in prescribed Form. No. 15G/15H declaring that the tax on his estimated total income of the relevant previous year would be nil. In order to reduce compliance burden in such cases, it is proposed to amend the provisions of section 197A for making the recipients of payments referred to in section 194-I also eligible for filing self-

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declaration in Form no 15G/15H for non-deduction of tax at source in accordance with the provisions of section 197A. 64. Tax Collection at Source (TCS) on sale of vehicles; goods or services [Section 206C] [W.e.f. 1-6-2016]

The existing provision of section 206C of the Act, inter alia, provides that the seller shall collect tax at source at specified rate from the buyer at the time of sale of specified items such as alcoholic liquor for human consumption, tendu leaves, scrap, mineral being coal or lignite or iron ore, bullion etc. in cash exceeding two lakh rupees.

In order to reduce the quantum of cash transaction in sale of any goods and services and for curbing the flow of unaccounted money in the trading system and to bring high value transactions within the tax net, it is proposed to amend the aforesaid section to provide that the seller shall collect the tax at the rate of one per cent from the purchaser on sale of motor vehicle of the value exceeding ten lakh rupees and sale in cash of any goods (other than bullion and jewellery), or providing of any services (other than payments on which tax is deducted at source under Chapter XVII-B) exceeding two lakh rupees.

It is also proposed to provide that the sub-section (1D) relating to TCS in relation to sale of any goods (other than bullion and jewellery) or services shall not apply to certain class of buyers who fulfil such conditions as may be prescribed.

The Income Declaration Scheme, 2016

65. The Income Declaration Scheme, 2016 [W.e.f. 1-6-2016] An opportunity is proposed to be provided to persons who have not paid full taxes

in the past to come forward and declare the undisclosed income and pay tax, surcharge and penalty totalling in all to forty-five per cent of such undisclosed income declared.

The scheme is proposed to be brought into effect from 1stJune 2016 and will remain open up to the date to be notified by the Central Government in the official gazette. The scheme is proposed to be made applicable in respect of undisclosed income of any financial year upto 2015-16.

Tax is proposed to be charged at the rate of thirty per cent on the declared income as increased by surcharge at the rate of twenty five per cent of tax payable (to be called the Krishi Kalyan cess). A penalty at the rate of twenty five per cent of tax payable is also proposed to be levied on undisclosed income declared under the scheme.

It is proposed that following cases shall not be eligible for the scheme: where notices have been issued under section 142(1) or 143(2) or 148 or

153A or 153C, or where a search or survey has been conducted and the time for issuance of

notice under the relevant provisions of the Act has not expired, or

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where information is received under an agreement with foreign countries regarding such income,

cases covered under the Black Money Act, 2015, or persons notified under Special Court Act, 1992, or cases covered under Indian Penal Code, the Narcotic Drugs and

Psychotropic Substances Act, 1985, the Unlawful Activities (Prevention) Act, 1967, the Prevention of Corruption Act, 1988.

It is proposed that payment of tax, surcharge and penalty may be made on or before a date to be notified by the Central Government in the Official Gazette and non-payment up to the date so notified shall render the declaration made under the scheme void.

It is proposed to provide that declarations made under the scheme shall be exempt from wealth-tax in respect of assets specified in declaration. It is also proposed that no scrutiny and enquiry under the Income-tax Act and Wealth-tax Act be undertaken in respect of such declarations and immunity from prosecution under such Acts be provided. Immunity from the Benami Transactions (Prohibition) Act, 1988 is also proposed for such declarations subject to certain conditions.

It is proposed to provide that where a declaration under the scheme has been made by misrepresentation or suppression of facts, such declaration shall be treated as void.

It is also proposed that nothing contained in the Scheme shall be construed as conferring any benefit, concession or immunity on any person other than the person making the declaration under this Scheme. In cases where any declaration has been made but no tax and penalty referred to the scheme has been paid within the time specified, the undisclosed income shall be chargeable to tax under the Income-tax Act in the previous year in which such declaration is made.

In cases where any income has accrued, arisen or received or any asset has been acquired out of such income prior to commencement of this Scheme, and no declaration in respect of such income is made under the Scheme such income shall be deemed to have accrued, arisen or received, or the value of the asset acquired out of such income shall be deemed to have been acquired or made, in the year in which a notice under section 142, section 143(2) or section 148 or section 153A or section 153C of the Income-tax Act is issued by the Assessing Officer and the provisions of the Income-tax Act shall apply accordingly.

It is further proposed that if any difficulty arises in giving effect to the provisions of this Scheme, the Central Government may, by order, not inconsistent with the provisions of this Scheme, remove the difficulty by an order not after the expiry of a period of two years from the date on which the provisions of this Scheme come into force and such order be laid before each House of Parliament.

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It is proposed that the Central Board of Direct Taxes under the control of Central Government be provided the power to make rules, by notification in the Official Gazette, for carrying out the provisions of this Scheme and such rules made be laid before each House of Parliament in the manner provided in the scheme.

The Direct Tax Dispute Resolution Scheme, 2016

66. The Direct Tax Dispute Resolution Scheme, 2016 Litigation has been a major area of concern in direct taxes. In order to reduce the

huge backlog of cases and to enable the Government to realise its dues expeditiously, it is proposed to bring the Direct Tax Dispute Resolution Scheme, 2016 in relation to tax arrear and specified tax. The salient features of the proposed scheme are as under: The scheme be applicable to "tax arrear" which is defined as the amount of

tax, interest or penalty determined under the Income-tax Act or the Wealth-tax Act, 1957 in respect of which appeal is pending before the Commissioner of Income-tax (Appeals) or the Commissioner of Wealth-tax (Appeals) as on the 29th day of February, 2016.

The pending appeal could be against an assessment order or a penalty order. The declarant under the scheme be required to pay tax at the applicable rate

plus interest upto the date of assessment. However, in case of disputed tax exceeding rupees ten lakh, twenty-five percent of the minimum penalty leviable shall also be required to be paid.

In case of pending appeal against a penalty order, twenty-five percent of minimum penalty leviable shall be payable alongwith the tax and interest payable on account of assessment or reassessment.

Consequent to such declaration, appeal in respect of the disputed income and disputed wealth pending before the Commissioner (Appeals) shall be deemed to be withdrawn.

In addition to the above, the scheme proposes that person may also make a declaration in respect of any tax determined in consequence of or is validated by an amendment made with retrospective effect in the Income-tax Act or Wealth-tax Act, as the case may be, for a period prior to the date of enactment of such amendment and a dispute in respect of which is pending as on 29.02.2016 (referred to as specified tax). For availing the benefit of the Scheme, such declarant shall be required to withdraw any writ petition or any appeal filed against such specified tax before the Commissioner (Appeals) or the Tribunal or High Court or Supreme Court, before making the declaration and shall also be required to furnish a proof of such withdrawal. Further if any proceeding for arbitration conciliation or mediation has been initiated by the declarant or he has given any notice under any law or agreement entered into by India, whether for protection of investment or otherwise, he shall be required to withdraw such notice or claim for availing benefit under this Scheme.

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It is proposed that person making declaration in respect of specified tax shall be required to furnish an undertaking in the prescribed form and verified in the prescribed manner, waiving the right, whether direct or indirect, to seek or pursue any remedy or claim in relation to the specified tax which otherwise be available to them under any law, in equity, by statute or under an agreement, whether for protection of investment or otherwise, entered into by India with a country or territory outside India. It is proposed that no appellate authority or Arbitrator or Conciliator or Mediator shall proceed to decide an issue relating to the specified tax in the declaration in respect of which an order is made by the designated authority or in respect of the payment of the sum determined to be payable.

It is proposed that where the declarant violates any of the conditions referred to in the scheme or any material particular furnished in the declaration is found to be false at any stage, it shall be presumed as if the declaration was never made under this Scheme and all the consequences under the Income-tax Act or Wealth-tax Act under which the proceedings against declarant were or are pending, shall be deemed to have been revived.

The declarant under the scheme shall get immunity from institution of any proceeding for prosecution for any offence under the Income-tax Act or the Wealth-tax Act. In case of specified tax the declarant shall also get immunity from imposition of penalty under the Income-tax Act or the Wealth-tax Act. However, in case of tax arrears immunity from penalty is proposed to be of the amount that exceeds the penalty payable as per the scheme. The scheme provides waiver of interest under the Income-tax Act or the Wealth-tax Act in respect of specified tax. However, waiver of interest in respect of tax arrears is to the extent the interest exceeds the amount of interest referred in the scheme.

In the following cases a person shall not be eligible for the scheme:—

(i) Cases where prosecution has been initiated before 29.02.2016.

(ii) Search or survey cases where the declaration is in respect of tax arrears.

(iii) Cases relating to undisclosed foreign income and assets.

(iv) Cases based on information received under Double Taxation Avoidance Agreement under section 90 or 90A of the Income-tax Act where the declaration is in respect of tax arrears.

(iv) Person notified under Special Courts Act, 1992.

(v) Cases covered under Narcotic Drugs and Psychotropic Substances Act, Indian Penal Code, Prevention of Corruption Act or Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974.

A declaration under the scheme may be made to the designated authority not below the rank of Commissioner in such form and verified in such manner as may be prescribed. The designated authority shall within sixty days from the date of receipt of

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the declaration, determine the amount payable by the declarant. The declarant shall pay such sum within thirty days of the passing such order and furnish proof of payment of such sum. Any amount paid in pursuance of a declaration shall not be refundable under any circumstances.

No matter covered by order of designated authority shall be reopened in any other proceeding under the Income-tax Act, 1961 or Wealth-tax Act, 1957. The designated authority shall subject to the conditions provided in the scheme grant immunity from instituting any proceeding for prosecution for any offence under the two Acts in respect of matters covered in the declaration.

Nothing contained in this Scheme shall be construed as conferring any benefit, concession or immunity on the declarant in any proceedings other than those in relation to which the declaration has been made.

It is proposed that the Central Government may be given the power to issue such orders, instructions and directions for the proper administration of this Scheme to persons employed in the execution of this Scheme shall observe and follow such orders, instructions and directions of the Central Government. In case any difficulty arises in giving effect to the provisions of this Scheme, the Central Government may by order not inconsistent with the provisions of this Scheme remove the difficulty. However, no such order shall be made after the expiry of a period of two years from the date on which the provisions of this Scheme come into force. Every such order, as soon as may be after it is made, be laid before each House of Parliament.

It is proposed that the Central Government may, by notification in the Official Gazette, make rules for carrying out the provisions of this Scheme. Every rule made under this Scheme be laid, as soon as may be after it is made, before each House of Parliament in the manner specified in the scheme.

Amendment relating to Advance Tax

67. Rationalisation of advance tax payment and charging of interest [Section 211 and Section 234C] [W.e.f. 1-6-2016]

As per the existing provisions of sub-section (1) of section 211, the advance tax payment schedule for a company is fifteen per cent, forty-five per cent, seventy-five per cent and hundred per cent of tax payable on the current income to be paid by 15th June, 15th September, 15th December and 15th March respectively. For other assessees, the advance tax payment schedule is thirty per cent, sixty per cent and hundred per cent of tax payable on current income to be paid by 15th September, 15th December and 15th March respectively.

Based on the recommendations of Expenditure Management Commission clubbed with the fact that most of the advance tax is now paid electronically it is proposed to rationalise schedule for advance tax payment and prescribe the same advance tax schedule for all assessees other than an eligible assessee in respect of eligible business as referred to in section 44AD. The modification in payment

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schedule will facilitate forecasting of revenue collections during a financial year with greater accuracy.

It is further proposed that an eligible assessee in respect of eligible business referred to in section 44AD opting for computation of profits or gains of business on presumptive basis, shall be required to pay advance tax of the whole amount in one instalment on or before the 15th March of the financial year.

Consequential amendments are also proposed to be made to section 234C which provides for chargeability of interest for deferment of advance tax to bring it in sync with the amendments proposed in section 211.

It is also proposed that interest under section 234C shall not be chargeable in case of an assessee having income under the head "Profits and gains of business or profession" for the first time, subject to fulfillment of conditions specified therein.

Amendment relating to payment of interest

68. Interest under section 234C shall not be charged in certain cases [Section 234C] [W.e.f. 1-6-2016]

It is proposed that interest under section 234C shall not be chargeable in case of an assessee having income under the head "Profits and gains of business or profession" for the first time, subject to fulfillment of conditions specified therein. 69. Payment of interest on refund [Section 244A] [W.e.f. 1-6-2016]

Section 244A inter alia provides that an assessee is entitled to interest on refund arising out of excess payment of advance tax, tax deducted or collected at source. It also provides that the period for which the interest is paid on such excess payment of tax begins from the 1st April of the assessment year and ends on the date on which refund is granted.

In order to ensure filing of return within the due date it is proposed to amend section 244A to provide that in cases where the return is filed after the due date, the period for grant of interest on refund may begin from the date of filing of return.

In the interest of fairness and equity, it is further proposed to provide that an assessee shall be eligible to interest on refund of self-assessment tax for the period beginning from the date of payment of tax or filing of return, whichever is later, to the date on which the refund is granted. For the purpose of determining the order of adjustment of payments received against the taxes due, the prepaid taxes i.e. the TDS, TCS and advance tax shall be adjusted first.

It is also proposed to provide that where a refund arises out of appeal effect being delayed beyond the time prescribed under sub-section (5) of section 153, the assessee shall be entitled to receive, in addition to the interest payable under sub-section (1) of section 244A, an additional interest on such refund amount calculated at the rate of three per cent per annum, for the period beginning from the date following the date of expiry of the time allowed under sub-section (5) of section 153 to the date on which the refund is granted. It is clarified that in cases where extension is granted

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by the Principal Commissioner or Commissioner by invoking proviso to sub-section (5) of section 153, the period of additional interest, if any, shall begin from the expiry of such extended period.

Amendments relating to penalties

70. Rationalisation of penalty provisions [Section 270A] [W.e.f. A.Y. 2017-18]

Under the existing provisions, penalty on account of concealment of particulars of income or furnishing inaccurate particulars of income is leviable under section 271(1)(c) of the Income-tax Act. In order to rationalize and bring objectivity, certainty and clarity in the penalty provisions, it is proposed that section 271 shall not apply to and in relation to any assessment for the assessment year commencing on or after the 1st day of April, 2017 and subsequent assessment years and penalty be levied under the newly inserted section 270A with effect from 1st April, 2017. The new section 270A provides for levy of penalty in cases of under reporting and misreporting of income.

Sub-section (1) of the proposed new section 270A seeks to provide that the Assessing Officer, Commissioner (Appeals) or the Principal Commissioner or Commissioner may levy penalty if a person has under reported his income.

It is proposed that a person shall be considered to have under reported his income if,—

(a) the income assessed is greater than the income determined in the return processed under clause (a) of sub-section (1) of section 143;

(b) the income assessed is greater than the maximum amount not chargeable to tax, where no return of income has been furnished;

(c) the income reassessed is greater than the income assessed or reassessed immediately before such re-assessment;

(d) the amount of deemed total income assessed or reassessed as per the provisions of section 115JB or 115JC, as the case may be, is greater than the deemed total income determined in the return processed under clause (a) of sub-section (1) of section 143;

(e) the amount of deemed total income assessed as per the provisions of section 115JB or 115JC is greater than the maximum amount not chargeable to tax, where no return of income has been filed;

(f) the income assessed or reassessed has the effect of reducing the loss or converting such loss into income.

The amount of under-reported income is proposed to be calculated in different scenarios as discussed herein. In a case where return is furnished and assessment is made for the first time the amount of under reported income in case of all persons

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shall be the difference between the assessed income and the income determined under section 143(1)(a). In a case where no return has been furnished and the return is furnished for the first time, the amount of under-reported income is proposed to be:

(i) for a company, firm or local authority, the assessed income;

(ii) for a person other than company, firm or local authority, the difference between the assessed income and the maximum amount not chargeable to tax.

In case of any person, where income is not assessed for the first time, the amount of under reported income shall be the difference between the income assessed or determined in such order and the income assessed or determined in the order immediately preceding such order.

It is further proposed that in a case where under reported income arises out of determination of deemed total income in accordance with the provisions of section 115JB or section 115JC, the amount of total under reported income shall be determined in accordance with the following formula-

(A - B) + (C - D)

where,

A = the total income assessed as per the provisions other than the provisions contained in section 115JB or section 115JC (herein called general provisions);

B = the total income that would have been chargeable had the total income assessed as per the general provisions been reduced by the amount of under reported income;

C = the total income assessed as per the provisions contained in section 115JB or section 115JC;

D = the total income that would have been chargeable had the total income assessed as per the provisions contained in section 115JB or section 115JC been reduced by the amount of under reported income.

However, where the amount of under reported income on any issue is considered both under the provisions contained in section 115JB or section 115JC and under general provisions, such amount shall not be reduced from total income assessed while determining the amount under item D.

It is clarified that in a case where an assessment or reassessment has the effect of reducing the loss declared in the return or converting that loss into income, the amount of under reported income shall be the difference between the loss claimed and the income or loss, as the case may be, assessed or reassessed.

Calculation of under-reported income in a case where the source of any receipt, deposit or investment is linked to earlier year is proposed to be provided based on the existing Explanation 2 to sub-section (l) of section 271(1).

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It is also proposed that the under-reported income under this section shall not include the following cases: (i) where the assessee offers an explanation and the income-tax authority is

satisfied that the explanation is bona fide and all the material facts have been disclosed;

(ii) where such under-reported income is determined on the basis of an estimate, if the accounts are correct and complete but the method employed is such that the income cannot properly be deducted therefrom;

(iii) where the assessee has, on his own, estimated a lower amount of addition or disallowance on the issue and has included such amount in the computation of his income and disclosed all the facts material to the addition or disallowance;

(iv) where the assessee had maintained information and documents as prescribed under section 92D, declared the international transaction under Chapter X and disclosed all the material facts relating to the transaction;

(v) where the undisclosed income is on account of a search operation and penalty is leviable under section 271AAB.

It is proposed that the rate of penalty shall be fifty per cent of the tax payable on under-reported income. However in a case where under reporting of income results from misreporting of income by the assessee, the person shall be liable for penalty at the rate of two hundred per cent of the tax payable on such misreported income. The cases of misreporting of income have been specified as under: (i) misrepresentation or suppression of facts; (ii) non-recording of investments in books of account; (iii) claiming of expenditure not substantiated by evidence; (iv) recording of false entry in books of account; (v) failure to record any receipt in books of account having a bearing on total

income; (vi) failure to report any international transaction or deemed international

transaction under Chapter X. It is also proposed that in case of company, firm or local authority, the tax payable

on under reported income shall be calculated as if the under-reported income is the total income. In any other case the tax payable shall be thirty per cent of the under-reported income.

It is also proposed that no addition or disallowance of an amount shall form the basis for imposition of penalty, if such addition or disallowance has formed the basis of imposition of penalty in the case of the person for the same or any other assessment year.

These amendments will take effect from 1st day of April, 2017 and will, accordingly apply in relation to assessment year 2017-2018 and subsequent years.

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Consequential amendments have been proposed in sections 119, 253, 271A, 271AA, 271AAB, 273A and 279 to provide reference to newly inserted section 270A.

The provisions of section 270A are illustrated through examples as below: Example 1. Case is of a firm liable to tax at the rate of 30 per cent.:

(Figures in Rs lakh)

Returned total Income 100

Total Income determined under section 143(1 )(a) 110

Total Income assessed under section 143(3) 150

Total Income reassessed under section 147 180

Considering that none of the additions or disallowances made in assessment or reassessment as above qualifies under sub-section (6) of section 270A, the penalty would be calculated as under:

Assessment under section 143 (3)

Re-assessment under section 147

Under-reported Income Tax Payable on under-reported Income Penalty Leviable*

(150-110) = 40 30 % of 40 = 12 50 % of 12 = 6

(180-150) = 30 30 % of 30 = 9 50 % of 9 = 4.5

* Considering under-reported income is not on account of misreporting Example 2. Case is of an individual below 60 years of age and no return of income has been furnished:

(Figures in Rs)

Total Income assessed under section 143(3) Under-reported Income Tax Payable on under-reported Income Penalty Leviable**

10,00,000 10,00,000-2,50,000* =7,50,000 30 % of 7,50,000 = 2,25,000 50 % of 2,25,000 = 1,12,500

* Being maximum amount not chargeable to tax ** Considering under-reported income is not on account of misreporting Example 3. Case is of a company liable to tax at the rate of 30 per cent.:

(Figures in Rs lakh)

Returned total Income (loss) (-)100

Total Income (loss) determined under section 143(1)(a) (-)90

Total Income (loss) assessed under section 143(3) (-)40

Total Income reassessed under section 147 20

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Considering that none of the additions or disallowances made in assessment or reassessment as above qualifies under sub-section (6) of section 270A, the penalty would be calculated as under:

Assessment under section 143 (3)

Re-assessment under section 147

Under-reported Income Tax Payable on under-reported Income Penalty Leviable*

(-)40 minus (-)90 = 50 30 % of 50 = 15 50 % of 15 = 7.5

20 minus (-)40 = 60 30 % of 60 = 18 50 % of 18 = 9

' Considering under-reported income is not on account of misreporting

71. Amendment of section 271AAB [W.e.f. A.Y. 2017-18] Existing provision of clause (c) of sub-section (1) of section 271AAB provides that

in a case not covered under the provisions of clauses (a) and (b) of the said sub-section of section 271 AAB, a penalty of a sum which shall not be less than thirty per cent but which shall not exceed ninety per cent of the undisclosed income of the specified previous year shall be levied in case where search has been initiated under section 132 on or after the 1st day of July, 2012.

In order to rationalise the rate of penalty and to reduce discretion it is proposed to amend that clause (c) of sub-section (1) of section 271AAB to provide for levy of penalty on such undisclosed income at a flat rate of sixty per cent of such income. 72. Amendment of Section 272A [W.e.f. A.Y. 2017-18]

Existing provision of Sub-section (1) provides for levy of penalty of ten thousand rupees for each failure or default to answer the questions raised by an income-tax authority under the Income-tax Act, refusal to sign any statement legally required during the proceedings under the Income-tax Act or failure to attend to give evidence or produce books or documents as required under sub-section (1) of section 131 of the Income-tax Act.

It is proposed to amend sub-section (1) of section 272A to further include levy of penalty of ten thousand rupees for each default or failure to comply with a notice issued under sub-section (1) of section 142 or sub-section (2) of section 143 or failure to comply with a direction issued under sub-section (2A) of section 142.

It is further proposed to amend sub-section (3) of section 272A to provide that penalty in case of failure referred above shall be levied by the income tax authority issuing such notice or direction.

It is also proposed to make consequential amendment to section 288 by insertion of a new clause (d) in sub- section (1) of section 272A in the Income-tax Act relating to penalty for failure to comply with the notices and directions specified therein. 73. Immunity from penalty and prosecution in certain cases by inserting new section 270AA [W.e.f. 1-6-2016]

It is proposed to provide that an assessee may make an application to the Assessing Officer for grant of immunity from imposition of penalty under section 270A

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and initiation of proceedings under section 276C, provided he pays the tax and interest payable as per the order of assessment or reassessment within the period specified in such notice of demand and does not prefer an appeal against such assessment order. The assessee can make such application within one month from the end of the month in which the order of assessment or reassessment is received in the form and manner, as may be prescribed.

It is proposed that the Assessing Officer shall, on fulfilment of the above conditions and after the expiry of period of filing appeal as specified in sub-section (2) of section 249, grant immunity from initiation of penalty and proceeding under section 276C if the penalty proceedings under section 270A has not been initiated on account of the following, namely:—

(a) misrepresentation or suppression of facts;

(b) failure to record investments in the books of account;

(c) claim of expenditure not substantiated by any evidence;

(d) recording of any false entry in the books of account;

(e) failure to record any receipt in books of account having a bearing on total income; or

(f) failure to report any international transaction or any transaction deemed to be an international transaction or any specified domestic transaction to which the provisions of Chapter X apply.

It is proposed that the Assessing Officer shall pass an order accepting or rejecting such application within a period of one month from the end of the month in which such application is received. However, in the interest of natural justice, no order rejecting the application shall be passed by the Assessing Officer unless the assessee has been given an opportunity of being heard. It is proposed that order of Assessing Officer under the said section shall be final.

It is proposed that no appeal under section 246A or an application for revision under section 264 shall be admissible against the order of assessment or reassessment referred to in clause (a) of sub-section (1), in a case where an order under section 270AA has been made accepting the application.

Clause (b) of sub-section (2) of section 249 provides that an appeal before the Commissioner (Appeals) is to be made within thirty days of the receipt of the notice of demand relating to an assessment order.

It is proposed to provide that in a case where the assessee makes an application under section 270AA of the Income-tax Act seeking immunity from penalty and prosecution, then, the period beginning from the date on which such application is made to the date on which the order rejecting the application is served on the assessee shall be excluded for calculation of the aforesaid thirty days period. The proposed amendment is consequential to the insertion of section 270AA.

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Equalisation Levy [Chapter VIII]

74. Equalisation Levy With the expansion of information and communication technology, the supply and

procurement of digital goods and services have undergone exponential expansion everywhere, including India. The digital economy is growing at ten per cent per year, significantly faster than the global economy as a whole.

Currently in the digital domain, business may be conducted without regard to national boundaries and may dissolve the link between an income-producing activity and a specific location. From a certain perspective, business in digital domain doesn't seem to occur in any physical location but instead takes place in the nebulous world of "cyberspace." Persons carrying business in digital domain could be located anywhere in the world. Entrepreneurs across the world have been quick to evolve their business to take advantage of these changes. It has also made it possible for the businesses to conduct themselves in ways that did not exist earlier, and given rise to new business models that rely more on digital and telecommunication network, do not require physical presence, and derives substantial value from data collected and transmitted from such networks.

These new business models have created new tax challenges. The typical direct tax issues relating to e-commerce are the difficulties of characterizing the nature of payment and establishing a nexus or link between a taxable transaction, activity and a taxing jurisdiction, the difficulty of locating the transaction, activity and identifying the taxpayer for income tax purposes. The digital business fundamentally challenges physical presence-based permanent establishment rules. If permanent establishment (PE) principles are to remain effective in the new economy, the fundamental PE components developed for the old economy i.e. place of business, location, and permanency must be reconciled with the new digital reality.

The Organization for Economic Cooperation and Development (OECD) has recommended, in Base Erosion and Profit Shifting (BEPS) project under Action Plan 1, several options to tackle the direct tax challenges which include modifying the existing Permanent Establishment (PE) rule to include that where an enterprise engaged in fully de-materialized digital activities would constitute a PE if it maintained a significant digital presence in another country's economy. It further recommended a virtual fixed place of business PE in the concept of PE i,e creation of a PE when the enterprise maintains a website on a server of another enterprise located in a jurisdiction and carries on business through that website. It also recommended to impose of a final withholding tax on certain payments for digital goods or services provided by a foreign e-commerce provider or imposition of a equalisation levy on consideration for certain digital transactions received by a non-resident from a resident or from a non-resident having permanent establishment in other contracting state.

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Considering the potential of new digital economy and the rapidly evolving nature of business operations it is found essential to address the challenges in terms of taxation of such digital transactions as mentioned above. In order to address these challenges, it is proposed to insert a new Chapter titled "Equalisation Levy" in the Finance Bill, to provide for an equalisation levy of 6 % of the amount of consideration for specified services received or receivable by a non-resident not having permanent establishment ('PE') in India, from a resident in India who carries out business or profession, or from a non-resident having permanent establishment in India.

Further, in order to reduce burden of small players in the digital domain, it is also provided that no such levy shall be made if the aggregate amount of consideration for specified services received or receivable by a non-resident from a person resident in India or from a non-resident having a permanent establishment in India does not exceed one lakh rupees in any previous year.

To provide certainty and to avoid interpretational issues, it is also proposed to define certain terms and expressions used therein. Further it also proposes to provide for the procedure to be adopted for collection and recovery of equalisation levy.

In order to provide for the administrative mechanism of the equalisation levy, it also proposes to provide for statutory authorities and also prescribes the duties and powers of the authorities to administer the equalisation levy. In order to ensure effective compliance, it also proposes to provide for interest; penalty and prosecution in case of defaults with sufficient safeguards.

Further, it also proposes to confer the power on the Central Government to make rules for the purposes of carrying out the provisions of this Chapter and further provides that every rule made under this Chapter shall be laid before each House of Parliament.

In order to avoid double taxation, it is proposed to provide exemption under section 10 of the Act for any income arising from providing specified services on which equalisation levy is chargeable.

In order to ensure compliance with the provisions this Chapter, it is further proposed to provide that the expenses incurred by the assessee towards specified services chargeable under this Chapter shall not be allowed as deduction in case of failure of the asseseee to deduct and deposit the equalisation levy to the credit of Central government.

This Chapter will take effect from the date appointed in the notification to be issued by the Central Government.

Other Amendments

75. Change in rate of Securities Transaction tax in case where option is not exercised [W.e.f. 1-6-2016]

Section 98 of the Finance (No.2) Act, 2004 provides that the securities transaction tax on sale of an option in securities where option is not exercised is 0.017 per cent of

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the option premium. It is proposed to increase the rate from 0.017 per cent.to 0.05 per cent. 76. Exemption from requirement of furnishing PAN under section 206AA to certain non-resident [Section 206AA] [W.e.f. 1-6-2016]

The existing provision of section 206AA, inter alia, provides that any person who is entitled to receive any sum or income or amount on which tax is deductible under Chapter XVIIB of the Act shall furnish his Permanent Account Number to the person responsible for deducting such tax, failing which tax shall be deducted at the rate mentioned in the relevant provisions of the Act or at the rate in force or at the rate of twenty per cent., whichever is higher. The provisions of section 206AA also apply to non-residents with an exception in respect of payment of interest on long-term bonds as referred to in section 194LC.

In order to reduce compliance burden, it is proposed to amend the said section 206AA so as to provide that the provisions of this section shall also not apply to a non-resident, not being a company, or to a foreign company, in respect of any other payment, other than interest on bonds, subject to such conditions as may be prescribed. 77. Providing Time limit for disposing applications made by assessee under section 273A, 273AA or 220(2A) [W.e.f. 1-6-2016]

Sub-section (2) of section 220 provides for levy of interest at the rate of 1 per cent for every month or part of month for the period during which the default continues. Sub-section (2A) of said section inter-alia, empowers the Principal Chief Commissioner, Chief Commissioner, Principal Commissioner or Commissioner to reduce or waive the amount of interest paid or payable under sub-section (2) of the said section.

Sub-section (4) of section 273A, inter alia, provides that the Principal Commissioner or the Commissioner may, on an application made by an assessee, reduce or waive the amount of any penalty payable by the assessee or stay or compound any proceeding for recovery of the penalty amount in certain circumstances.

Section 273AA inter alia, provides that the Principal Commissioner or the Commissioner may grant immunity from penalty, if penalty proceedings have been initiated in case of a person who has made application for settlement before the settlement commission and the proceedings for settlement had abated under the circumstances contained in section 245HA of the Act

Under the existing provisions no time limit has been provided regarding the passing of orders either under section 220 or sections 273A or 273AA. Further, these provisions do not specifically mandate that assessee be given an opportunity of being heard in case such application is rejected by an authority. Therefore, in order to rationalise the provisions and provide for specific time-line, amendment to the existing provisions have been proposed.

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It is proposed to amend section 220 to provide that an order accepting or rejecting application of an assessee shall be passed by the concerned Principal Chief Commissioner, Chief Commissioner, Principal Commissioner or Commissioner within a period of twelve months from the end of the month in which such application is received.

It is further proposed to amend section 273A and section 273AA to provide that an order accepting or rejecting the application of an assessee shall be passed by the Principal Commissioner or Commissioner within a period of twelve months from the end of the month in which such application is received.

It is also proposed to provide that no order rejecting the application of the assessee under section 220 or 273A, 273AA shall be passed without giving the assessee an opportunity of being heard. However, in respect of applications pending as on 1st day of June, 2016, the order under said sections shall be passed on or before 31st May, 2017.

78. Providing legal framework for automation of various processes and paperless assessment [Section 282A] [W.e.f. 1-6-2016]

It is proposed to amend the relevant provisions of the Act so as to provide adequate legal framework for paperless assessment in order to enhance efficiency and reduce the burden of compliance. A series of changes are proposed to achieve this end.

Sub-section (1) of section 282A provides that where a notice or other document is required to be issued by any income-tax authority under the Act, such notice or document should be signed by that authority in manuscript.

It is proposed to amend sub-section (1) of section 282A so as to provide that notices and documents required to be issued by income-tax authority under the Act shall be issued by such authority either in paper form or in electronic form in accordance with such procedure as may be prescribed.

Sub-section (2) of section 143 provides that, if the Assessing Officer considers it necessary and expedient to ensure that the assessee has not understated the income or has not computed excessive loss or has not under-paid the tax in any manner, he shall serve on the assessee a notice requiring him to produce, or cause to be produced on a specified date, any evidence on which the assessee may rely in support of the return.

In order to ensure timely service of notice issued under sub-section (2) of section 143, it is proposed to amend sub-section (2) of section 143 to provide that notice under the said sub-section may be served on the assessee by the Assessing Officer or the prescribed income-tax authority, either to attend the office of the Assessing Officer or to produce, or cause to be produced before the Assessing Officer any evidence on which the assessee may rely in support of the return.

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It is also proposed to amend the existing provision of section 2 by inserting new clause (23C) to define the term "hearing" to include communication of data and documents through electronic mode.

79. Rationalisation of the provisions relating to Appellate Tribunal [W.e.f. 1-6-2016]

Existing clause (b) of sub-section (3), sub-section (4A) and sub-section (5) of section 252 provide for the appointment and powers of Senior Vice- President of the Appellate Tribunal.

In view of the fact that there are no extra-judicial or administrative duties or difference in the pay scale attached with the post of Senior Vice-president in the Tribunal, it is proposed to omit the reference of "Senior Vice-President".

Sub-section (2A) of section 253 provides that the Principal Commissioner or Commissioner may, if he objects to any direction issued by the Dispute Resolution Panel (DRP) under sub-section (5) of section 144C in pursuance of which the Assessing Officer has passed an order completing the assessment or reassessment, direct the Assessing Officer to appeal to the Appellate Tribunal against such order .

Further, sub-section (3A) of section 253 provides that every appeal under sub-section (2A) shall be filed within sixty days of the date on which the order sought to be appealed against is passed by the Assessing Officer in pursuance of the directions of the DRP under sub-section (5) of section 144C.

In line with the decision of the Government to minimise litigation, it is proposed to omit the said sub-sections (2A) and (3A) of section 253 to do away with the filing of appeal by the Assessing Officer against the order of the DRP. Consequent amendments are proposed to be made to sub-section (3A) and (4) of the said provision also.

These amendments will take effect from 1st day of June, 2016.

It is also proposed to provide that in cases where Department is already in appeal against the directions of DRP under sub-section (2A) of the section 253 (as it stood before the amendment of the Finance Act, 2016), no fee shall be payable.

This amendment will take effect retrospectively from 1st July, 2012.

The existing provisions sub-section (2) of the section 254 of the Act, provide that the Appellate Tribunal may rectify any mistake apparent from the record in its order at any time within four years from the date of the order.

In order to bring certainty to the order of ITAT, it is proposed to amend sub-section (2) of section 254 to provide that the Appellate Tribunal may rectify any mistake apparent from the record in its order at any time within six months from the end of the month in which the order was passed.

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The existing provision of sub-section (3) of section 255, inter alia, provides that a single member bench may dispose of any case which pertains to an assessee whose total income as computed by the Assessing Officer does not exceed fifteen lakh rupees.

In view of the recent increase in monetary limit for filing appeal before ITAT and to expedite the process of dispute resolution at the level of ITAT, it is proposed to amend the said sub-section (3) so as to provide that a single member bench may dispose of a case where the total income as computed by the Assessing Officer does not exceed fifty lakh rupees.

80. Provision for bank guarantee under section 281B [W.e.f. 1-6-2016]

Under the existing provisions of section 281B the Assessing Officer may provisionally attach any property of the assessee during the pendency of assessment or reassessment proceedings, for a period of six months with the prior approval of the income- tax authorities specified therein, if he is of the opinion that it is necessary to do so for the purpose of protecting the interests of the revenue. Such attachment of property is extendable to a maximum period of two years or sixty days after the date of assessment order, whichever is later.

The Income Tax Simplification Committee (Easwar Committee) has recommended that provisional attachment of property could be substituted by a bank guarantee subject to fulfilment of certain conditions. Having considered this recommendation, it is proposed that the Assessing Officer shall revoke provisional attachment of property made under sub-section (1) of the aforesaid section in a case where the assessee furnishes a bank guarantee from a scheduled bank, for an amount not less than the fair market value of such provisionally attached property or for an amount which is sufficient to protect the interests of the revenue.

In order to help the Assessing Officer to determine the fair market value of the property, the Assessing Officer may, make a reference to the Valuation Officer, who may be required to submit the report of the estimate of the property to the Assessing Officer within a period of thirty days from the date of receipt of such reference.

In order to ensure the revocation of attachment of property in lieu of bank guarantee in a time bound manner, it is proposed to provide that an order revoking the attachment be made by the Assessing Officer within fifteen days of receipt of such guarantee, and in a case where a reference is made to the Valuation Officer, within forty-five days from the date of receipt of such guarantee.

It is further proposed that where a notice of demand specifying a sum payable is served upon the assessee and the assessee fails to pay such sum within the time specified in the notice, the Assessing Officer may invoke the bank guarantee, wholly or partly, to recover the said amount.

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In a case where the assessee fails to renew the bank guarantee or fails to furnish a new guarantee from a scheduled bank for an equal amount fifteen days before the expiry of such guarantee, the Assessing Officer may in the interests of the revenue, invoke the bank guarantee. The amount realised by invoking the bank guarantee shall be adjusted against the existing demand which is payable and the balance amount, if any, be deposited in the Personal Deposit Account of the Principal Commissioner or Commissioner in the branch of Reserve Bank of India or the State Bank of India or of its subsidiaries or any bank as may be appointed by the Reserve Bank of India as its agent under the provisions of sub-section (1) of section 45 of the Reserve Bank of India Act, 1934 at the place where the office of the Principal Commissioner or Commissioner is situated.

It is proposed that in a case where the Assessing Officer is satisfied that the bank guarantee is not required anymore to protect the interests of the revenue, he shall release that guarantee forthwith.

81. Legislative framework to enable and expand the scope of electronic processing of information [W.e.f. 1-6-2016]

The existing provisions of section 133C empower the prescribed income-tax authority to issue notice calling for information and documents for the purpose of verification of information in its possession.

In order to expedite verification and analysis of the information and documents so received, it is proposed to amend section 133C to provide adequate legislative backing for processing of information and documents so obtained and making the outcome thereof available to the Assessing Officer for necessary action, if any.

It is also proposed to amend Explanation 2 to section 147 to provide for reopening of cases by the AO on the basis of the information so received.

Clause (a) of sub-section (1) of section 143 provides that, a return filed is to be processed and total income or loss is to be computed after making the adjustments on account of any arithmetical error in the return or on account of an incorrect claim, if such incorrect claim is apparent from any information in the return.

In order to expeditiously remove the mismatch between the return and the information available with the Department, it is proposed to expand the scope of adjustments that can be made at the time of processing of returns under sub-section (1) of section 143. It is proposed that such adjustments can be made based on the data available with the Department in the form of audit report filed by the assessee, returns of earlier years of the assessee, 26AS statement, Form 16, and Form 16A. However, before making any such adjustments, in the interest of natural justice, an intimation shall be given to the assessee either in writing or through electronic mode requiring him to respond to such adjustments. The response received, if any, will be

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duly considered before making any adjustment. However, if no response is received within thirty days of issue of such intimation, the processing shall be carried out incorporating the adjustments.

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CUSTOMS DUTY

70

71

CUSTOMS ACT Changes proposed vide the Finance Bill, 2016

Comments Affected statutory provisions

Warehouse to include Special Warehouse licensed under Section 58A

Section 2 (43) amended

Warehousing station and the power to declare warehousing station to be done away with

Section 2 (45) and Section 9 omitted

DIPP to publish and put notifications for sale related specifics omitted

Section 25(4b) and (5) omitted

Recovery proceedings extended to not paid and short paid (earlier it was only for not levied, short levied, short paid or erroneously refunded) Bona fide proceedings can now be initiated for last two years

Section 28 amended

Concept of deferred payment of duty being introduced both for imports as well as exports – rules to follow

Section 47 and 51 amended

Trans-shipment of goods without payment of duty Section 53 amended Principal Commissioner or Commissioner to appoint public/ private warehouse wherein duty paid goods can be stored (earlier AC/DC) Can also appoint special warehouse Also entitled to cancel or suspend license

Section 57 and 58 amended Section 58A (1) inserted Section 58B (1) inserted

Warehousing bond now to be for the thrice of the amount as against twice prescribed earlier

In addition to the bond, furnishing security may also required

In case of ownership of such goods being transferred to another person, the transferee would need to execute bond and security Earlier section referred to Section 61 but now refers to Section 46

Section 59 amended

Provisions relating to control over warehousing goods and payment of rent and warehousing charges done away with

Section 62 and 63 omitted

Free Samples from the warehouse can no longer be taken away

Section 64 amended

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Notification 30/ 2016 Customs (NT) Baggage rules, 2016 notified – effective April 01, 2016 Notification 31/ 2016 Customs (NT) Customs Baggage Declaration (Amendment) Regulations, 2016 – effective April 01, 2016 Notification 32/ 2016 Customs (NT) Customs (import of goods at concessional rate) – effective April 01, 2016 Notification 33/ 2016 Customs (NT) Interest rate – 15 percent p.a. – effective April 01, 2016 Change in Duty Rates Illustrative list of products wherein rates of customs duty have been reduced

Chapter Heading

Item New Rate Old Rate Notification

8 Cashew Nuts 5 percent Nil 12 22 Denatured Ethyl Alcohol 2.5 5 12 25 Silica Sand 2.5 5 12 39 Polypropylene granules Nil 7.5 12 Super absorbent polymer 5 7.5 12 40 Natural Latex rubber made

balloons 20 10 Finance Bill

44 Wood in chips or particles for manufacture of paper, paper board and new print

Nil 5 12

47 Pulp of wood used for goods manufactured covered under 9619

2.5 5 12

54 and 55

Specified fibers, filaments and yarns

2.5 5 12

86 Refrigerated Containers 5 10 12

• Rate of duty have been eased and procedures simplified for maintenance and repair of ships and aircrafts

• Concessional duty rates have been extended to ‘cold chain including pre-cooling unit, packhouses, sorting and grading lines and ripening chambers’

• Duty free allowance for bonafide gifts is being increased from 10,000 to 20,000 • Disposable sterilized dialyzer and micro barrier of artificial kidney is being

exempted from BCD, Excise/ CVD and SAD • Budget Speech – Drawback rates deeper and wider

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CENTRAL EXCISE

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CENTRIAL EXCISE Note: "Basic Excise Duty" means the excise duty set forth in the First Schedule to the Central Excise Tariff Act, 1985.

AMENDMENTS IN THE CENTRAL EXCISE ACT, 1944: S.

No. Amendment

1. Section 5A is being amended so as to omit the requirement of publishing and offering for sale any notification issued, by the Directorate of Publicity and Public Relations of CBEC. [Clause 139]

2. Section 11A is being amended so as to increase the period of limitation from one year to two years in cases not involving fraud, suppression of facts, willful mis-statement, etc. [ Clause140]

3. Section 37B is being amended so as to empower the Board for implementation of any other provision of the said Act in addition to the power to issue orders, instructions and directions. [Clause 141]

4. The Third Schedule is being amended so as to: a) make some editorial changes, consequent to 2017 Harmonized System of Nomenclature. b) include therein: 1) All goods falling under heading 3401 and 3402; 2) Aluminium foils of a thickness not exceeding 0.2 mm; 3) Wrist wearable devices (commonly known as 'smart watches'); and 4) Accessories of motor vehicle and certain other specified goods. Changes at (b) above will come into effect immediately owing to a declaration under the Provisional Collection of Taxes Act, 1931. [Clause 142(ii)] [142(i)]

AMENDMENTS IN THE FIRST SCHEDULE TO THE CENTRAL EXCISE TARIFF ACT, 1985

S. No.

Amendment

A Amendments not affecting rates of duty 1. Editorial changes in the Harmonized System of Nomenclature (HSN) in certain

chapters are being incorporated in the First and Second Schedules, to be effective from 01.01.2017. [Clause 143 (ii)]

2. To: (a) Amend supplementary notes (e) and (f) Chapter 27 so as to change the

reference: (i) from IS:1460:2000 to IS:1460:2005 for high speed diesel (HSD) and (ii) from IS:1460 to IS: 15770:2008 for light diesel oil (LDO)

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S. No.

Amendment

(b) Substitute Tariff line 5801 39 10 with description "Warp pile fabrics, uncut" in place of tariff line 5801 37 11 [with description Warp pile fabrics 'epingle' uncut velvet] and 5801 37 19 [with description Warp pile fabrics 'epingle' uncut other];

(c) Prescribe separate tariff lines for laboratory created or laboratory grown or manmade or cultured or synthetic diamonds;

(d) Delete Tariff line 8525 50 50, relating to Wireless microphone. [Clause 143(i)]

From To

B Amendments involving change in the rate of duty

Aerated Beverages 1 Waters, including mineral waters and aerated

waters, containing added sugar or other sweetening matter or flavoured

18% 21%

Tobacco and Tobacco Products 2 Cigar and cheroots, Cigarillos, Cigarillos of

tobacco substitutes, Others of tobacco substitutes 12.5% or Rs.3375 per thousand, whichever is higher

12.5% or Rs.3755 per thousand, whichever is higher

3 Cigarettes of tobacco substitutes Rs.3375 per thousand

Rs.3755 per thousand

4 Gutkha, chewing tobacco (including filter khaini) and jarda scented tobacco

70% 81%

5 Unmanufactured tobacco 55% 64% 6 Paper rolled biris [whether handmade or machine

made] and other biris [other than handmade biris] However, the effective rate of basic excise duty of Rs.21 per thousand shall remain unchanged.

Rs.30 per thousand

Rs.80 per thousand

The amendments involving increase in the duty rates will come into effect

immediately owing to a declaration under the Provisional Collection of Taxes Act, 1931.

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OTHER PROPOSALS INVOLVING CHANGES IN DUTY RATES: From To Food processing 1 Refrigerated containers 12.5% 6% Fertilizers 2 Micronutrients which are covered under Sr. No. 1(f) of

Schedule 1 Part (A) of the Fertilizer Control Order, 1985 and are manufactured by the manufacturers which are registered under FCO, 1985

12.5% 6%

3 Physical mixture of fertilizers manufactured by Co-operative Societies, holding certificate of manufacture for mixture of fertilizers under the Fertiliser Control Order 1985, made out of chemical fertilizers on which duty of excise has been paid and no credit of duty paid on such chemical fertilizers has been taken under rule 3 of the CENVAT Credit Rules, 2004 and which are intended for supply to the members of such Co-operative Societies

1% [without CENVAT credit] or 6% [with CENVAT credit]

Nil

Textiles 4 To increase Tariff Value of readymade garments and

made up articles of textiles 30% of retail sale price

60% of retail sale price

5 Branded readymade garments and made up articles of textiles of retail sale price of Rs.1000 or more

Nil [without

2% [without

CENVAT credit] or 6%/12.5% [with CENVAT credit]

CENVAT credit] or 12.5% [with CENVAT credit]

6 PSF/PFY, manufactured from plastic scrap or plastic waste including waste PET bottles

2% [without

2% [without

CENVAT credit] or 6% [with CENVAT credit]


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From To Footwear 7 Rubber sheets & resin rubber sheets for soles and

heels 12.5% 6%

8 Increase the abatement from retail sale price (RSP) for the purposes of excise duty assessment for all categories of footwear

25% 30%

Metals 9 To change excise duty structure on disposable

containers made of aluminium foils. 2% [without

2% [without

CENVAT credit] or 6% [with CENVAT credit]


Precious metals & Jewellery 10 Refined gold bars manufactured from gold dore bar,

silver dore bar, gold ore or concentrate, silver ore or concentrate, copper ore or concentrate. Prospectively, the excise duty exemption under the existing area based exemptions on refined gold is being withdrawn.

9% 9.5%

11 Refined silver manufactured from silver ore or concentrate, silver dore bar, or gold dore bar. Prospectively, the excise duty exemption under the existing area based exemptions on refined silver is being withdrawn.

8% 8.5%

12 Articles of Jewellery [excluding silver jewellery, other than studded with diamonds or other precious stones namely, ruby, emerald and sapphire] with a higher threshold exemption upto Rs. 6 crore in a year and eligibility limit of Rs.12 crore, along with simplified compliance procedure.

Nil 1% [without CENVAT credit] or 12.5% [with CENVAT credit]

Renewable Energy 13 Unsaturated Polyester Resin (polyester based infusion

resin and hand layup resin), Hardeners/Hardener for adhesive resin, Vinyl Easter Adhesive (VEA) and Epoxy Resin used for manufacture of rotor blades and intermediates, parts and sub parts of rotor blades for wind operated electricity generators

Nil 6%

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From To 14 Carbon pultrusion used for manufacture of rotor blades

and intermediates, parts and sub-parts of rotor blades for wind operated electricity generators

12.5% 6%

Solar lamp 12.5% Nil

15 To prescribe "valid agreement between importer/ producer of power with urban local body for processing of municipal solid waste for not less than ten years from the date of commissioning of project" as an another alternative for availing concessional customs/excise duty benefits in case of power generation project based on municipal and urban waste.

- -

Civil Aviation

16 Aviation Turbine Fuel [ATF] other than for supply to Scheduled Commuter Airlines (SCA) from the Regional Connectivity Scheme airports

8% 14%

Maintenance, repair and overhaul [MRO] of aircrafts

17 Tools and tool kits when procured by MROs for maintenance, repair, and overhauling [MRO] of aircraft subject to a certification by the Directorate General of Civil Aviation

Applicable excise duty

Nil

18 To simplify the procedure for availment of exemption from excise duty on parts, testing equipment, tools and tool-kits for maintenance, repair and overhaul of aircraft based on records

19 To remove the restriction of one year for utilization of duty free parts for maintenance, repair and overhaul of aircraft

- -

Electronics & IT hardware

20 Charger/adapter, battery and wired headsets/speakers for supply to mobile phone manufacturers as original equipment manufacturer

Nil 2% [without CENVAT credit]

or

12.5% [with

CENVAT credit]

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From To

21 Inputs, parts and components, subparts for manufacture of charger / adapter, battery and wired headsets / speakers of mobile phone, subject to actual user condition.

12.5%/ Nil

Nil

22 Routers, broadband Modems, Set-top boxes for gaining access to internet, set top boxes for TV, digital video recorder (DVR) / network video recorder (NVR), CCTV camera / IP camera, lithium ion battery [other than those for mobile handsets]

12.5% 4% [without CENVAT credit]

or

12.5% [with CENVAT credit]

23 Parts and components, subparts for manufacture of Routers, broadband Modems, Set-top boxes for gaining access to internet, set top boxes for TV, digital video recorder (DVR) / network video recorder (NVR), CCTV camera / IP camera, lithium ion battery [other than those for mobile handsets]

12.5% Nil

Machinery

24 Electric motor, shafts, sleeve, chamber, impeller, washer required for the manufacture of centrifugal pump

12.5% 6%

Automobiles

25 Specified parts of Electric Vehicles and Hybrid Vehicles

6% Upto 31.03.2016

6% Without time limit

26 Engine for xEV (hybrid electric vehicle) 12.5% 6%

Miscellaneous

27 Excise duty on sacks and bags of all plastics is being rationalized at 15%.

12.5%/15%

15%

28 Unconditionally exempt improved cook stoves including smokeless chulhas for burning wood, agrowaste, cowdung, briquettes, and coal

Nil Nil

29 Disposable sterilized dialyzerand micro barrier of artificial kidney

12.5% Nil

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From To 30 Ready Mix Concrete manufactured at the site of

construction for use in construction work at such site 2% [without input tax credit] / 6% [with input tax credit]

Nil

31 Parts of railway or tramway locomotives or rolling stock and railway or tramway track fixtures and fittings, railway safety or traffic control equipment, etc.

12.5% 6%

32 Remnant kerosene, presently available for manufacture of Linear alkyl Benzene [LAB] and heavy alkylate [HA] to N-paraffin. At present, exemption is restricted to manufacturers of LAB and HA.

14% Nil

33 Clean Energy Cess / Clean Environment Cess on coal, lignite or peat produced or extracted as per traditional and customary rights enjoyed by local tribals without any license or lease in the State of Nagaland

Rs.200 per tonne

Nil

34 To extend Retail Sale Price [RSP] based assessment of excise duty to:

(a) all goods falling under heading 3401 and 3402 [with abatement rate of 30%],

(b) aluminium foils of a thickness not exceeding 0.2 mm [with abatement rate of 25%],

(c) wrist wearable devices (commonly known as 'smart watches') [with abatement rate of 35%], and

(d) accessories of motor vehicle and certain other specified goods [with abatement rate of 30%].

MISCELLANEOUS (1) The Oil Industry (Development) Act, 1974 is being amended so as to reduce

the rate of Oil Industries Development Cess, on domestically produced crude oil, from Rs. 4500 PMT to 20% ad valorem OIDB Cess. The amendment in the Act will be effective from the date of assent to the Finance Bill, 2016.

(2) The Seventh Schedule to the Finance Act, 2005 is being amended so as to increase the excise duty across all lengths of non-filter and filter cigarettes as under:

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Cigarettes From Rs. Per thousand

To Rs. Per thousand

Non filter not exceeding 65 mm 70 215 Non-filter exceeding 65 mm but not exceeding 70 mm

110 370

Filter not exceeding 65 mm 70 215 Filter exceeding 65 mm but not exceeding 70 mm

70 260

Filter exceeding 70 mm but not exceeding 75 mm

110 370

Other 180 560 (3) The Clean Energy Cess is being renamed as Clean Environment Cess. Also,

the Tenth Schedule to the Finance Act, 2010 dealing with Clean Energy Cess is being amended so as to increase the Scheduled rate of Clean Energy Cess from Rs.300 per tonne to Rs.400 per tonne. The effective rate of Clean Energy Cess is being increased from Rs.200 per tonne to Rs.400 per tonne

(4) Infrastructure Cess is being levied on motor vehicles, of heading 8703, as under:

(b) Petrol/LPG/CNG driven motor vehicles of length not exceeding 4m and engine capacity not exceeding 1200cc- 1%

(c) Diesel driven motor vehicles of length not exceeding 4m and engine capacity not exceeding 1500cc - 2.5%

(d) Other higher engine capacity motor vehicles and SUVs and bigger sedans - 4%.

Three wheeled vehicles, Electrically operated vehicles, Hybrid vehicles, Hydrogen vehicles based on fuel cell technology, Motor vehicles which after clearance have been registered for use solely as taxi, Cars for physically handicapped persons and Motor vehicles cleared as ambulances or registered for use solely as ambulance will be exempt from this Cess. No credit of this Cess will be available, and credit of no other duty can be utilized for payment of this Infrastructure Cess. [Clause 159]

The changes at 2), 3) and 4) above will come into effect immediately owing to a declaration under the Provisional Collection of Taxes Act, 1931. RULES AND REGULATIONS UNDER THE CUSTOMS ACT, 1962 (1) The existing Baggage Rules, 1998 are being substituted with the Baggage

Rules, 2016, so as to simplify and rationalize multiple slabs of duty free allowance for various categories of passengers. The new Rules are effective from 01.04.2016.

(2) The existing Customs (Import of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 1996 are being substituted with the Customs (Import of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 2016 with a view to simplify the rules, including

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allowing duty exemptions to importer/manufacturer based on self-declaration instead of obtaining permissions from the Central Excise authorities. Need for additional registration is also being done away with. The new Rules will be effective from 01.04.2016.

(3) The Customs Baggage Declaration Regulations, 2013 is being amended so as to prescribe filing of Customs declaration only for those passengers who carry dutiable or prohibited goods.

AMENDMENTS IN THE CENTRAL EXCISE RULES, 2002 AND THE CENVAT CREDIT RULES, 2004 (1) The Central Excise Rules, 2002 are being amended so as to: (a) reduce the number of returns to be filed by a central excise assessee

above a certain threshold from 27 to 13, that is, one annual and 12 monthly returns. Monthly returns are already being e-filed. CBEC will provide for e-filing of annual return also. This annual return will have to be filed by service tax assessees also, above a certain threshold, taking total number of returns to three in a year for them,

(b) extend the facility for revision of return, hitherto available to a service tax assessees only, to manufacturers also.

(c) provide that in cases where invoices are digitally signed, the manual attestation of copy of invoice, meant for transporter, is done away with.

(d) provide that in case of finalization of provisional assessment, the interest will be chargeable from the original date of payment of duty.

(2) The CENVAT Credit Rules, 2004 are being amended, so as to improve credit flow, reduce the compliance burden and associated litigations, particularly those relating to apportionment of credit between exempted and non-exempted final products / services. Changes are also being made in the provisions relating to input service distributor, including extension of this facility to transfer input services credit to outsourced manufacturers, under certain circumstances. The amendments in these Rules will also enable manufacturers with multiple manufacturing units to maintain a common warehouse for inputs and distribute inputs with credits to the individual manufacturing units.

(3) Instructions are being issued to Chief Commissioners of Central Excise to file application to Courts to withdraw prosecution in cases involving duty of less than rupees five lakh and pending for more than fifteen years.

(4) The existing Central Excise (Removal of Goods at Concessional Rate of Duty for Manufacture of Excisable and Other Goods) Rules, 2001 are being substituted with the Central Excise (Removal of Goods at Concessional Rate of Duty for Manufacture of Excisable and Other Goods) Rules, 2016, so as to simplify the rules, including allowing duty exemptions to importer/ manufacturer based on self-declaration instead of obtaining permissions from the Central Excise authorities.

(5) Other Changes in CENVAT Rules stated under chapter X of the Service Tax

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AMENDMENTS TO OTHER ACTS S.

No. Amendment

1. The Finance Act, 2001 (i) To amend the Seventh Schedule which provides for levy on NCCD of excise on

specified goods so as to align the tariff lines with the First Schedule to the Central Excise Tariff Act, 1985. [Clause 228(i)]

(ii) To amend the Seventh Schedule which provides for levy on NCCD of excise on specified goods so as to include 2017 Harmonized System of Nomenclature (HSN) editorial changes. These changes will be effective from 01.01.2017. (Clause 228(ii))

2. The Central Sales Act, 1956 Section 3 of the Central Sales Tax Act, 1956 is being amended so as to insert

an explanation: Explanation.- Where the gas sold or purchased and transported through a common carrier pipeline or any other common transport distribution systems becomes co-mingled and fungible with other gas in the pipeline or system and such gas is introduced into the pipeline or system in one State and is taken out from the pipeline in another State, such sale or purchase of gas shall be deemed to be a movement of goods from one state to another. (Clause 221)

3. The Central Road Fund Act, 2000 Section 10 of the Central Road Fund Act, 2000 is being amended so as to

substitute clause (viii) of sub-section (1) therein to provide a formula for redistribution of the cess for different purposes (Clause 227)

4. The prevention of money laundering act, 2002, the smugglers and foreign exchange manipulators (forfeiture of property act, 1976 and narcotics drugs and psychotropic substances act, 1985

To merge the three Tribunals established under these Acts and to provide that Appellate Tribunal established under the Smugglers and Foreign Exchange Manipulators (Forfeiture of Property) Act, 1976 shall be the appellate Tribunal for hearing the appeals against the orders made under all these three Acts. [Clause 229, 223 & 224]

5. The Foreign Exchange Management Act, 1999 To insert section 14A in the Foreign Exchange Management Act [FEMA], 1999

to incorporate provisions contained under the Second Schedule appended to the Income-tax Act, 1961, so as to empower an officer not below the rank of Assistant Director to recover arrears of penalty under the FEMA 1999 by exercising the powers conferred under the Income-tax Act, 1961. [Clause 225 & 226]

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SERVICE TAX

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SERVICE TAX

I Krishi Kalyan Cess Existing Proposed 1. An enabling provision is being made to levy Krishi

Kalyan Cess on all taxable services with effect from 1st June, 2016, to finance and promote initiatives to improve agriculture.

- 0.5%

II Broadening of Tax base Existing Proposed 1. Exemption on services provided by,— (i) a senior advocate to an advocate or

partnership firm of advocates providing legal service; and

(ii) a person represented on an arbitral tribunal to an arbitral tribunal,

Nil 14%

is being withdrawn with effect from 1st April, 2016 Notification No. 9/2016-ST, dated 1st March, 2016 Rule 2(1)(d)(i) (D)(II) is being modified so that legal services provided by a senior advocate shall be on forward charge. (Notification No. 19/2016-ST dated 1.03.2016 refers)

2. Exemption on construction, erection, commissioning or installation of original works pertaining to monorail or metro, in respect of contracts entered into on or after 1st March 2016, is being withdrawn with effect from 1st March, 2016. Notification No. 9/2016-ST, dated 1st March, 2016

Nil 5.6%

3. Exemption on the services of transport of passengers, with or without accompanied belongings, by ropeway, cable car or aerial tramway is being withdrawn with effect from 1st April, 2016. Notification No. 9/2016-ST, dated 1st March, 2016

Nil 14%

4. The Negative List entry that covers 'service of transportation of passengers, with or without accompanied belongings, by a stage carriage' is being omitted with effect from 1st June, 2016. Service Tax is being levied on transportation of passengers by air conditioned stage carriage with effect from 1st June, 2016, at the same level of abatement as applicable to the transportation of passengers by a contract carriage, that is, 60% without credit of inputs, input services and capital goods.

Nil 5.6%

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III New Exemptions

1. Services by way of construction etc. in respect of—

i. Services by way of construction, erection etc. of a civil structure or any other original works pertaining to the “In-situ Rehabilitation of existing slum dwellers using land as a resource through private participation” component of Housing for All (HFA) (Urban) Mission / Pradhan Mantri Awas Yojana (PMAY), except in respect of such dwelling units of the projects which are not constructed for existing slum dwellers, is being exempted from service tax.

(New entry at S. No. 13 (ba) of notification No. 25/2012-ST refers)

ii. Services by way of construction, erection etc., of a civil structure or any other original works pertaining to the “Beneficiary-led individual house construction / enhancement” component of Housing for All (HFA) (Urban) Mission/ Pradhan Mantri Awas Yojana (PMAY) is being exempted from service tax.

(New entry at S. No. 13 (bb) of notification No. 25/2012-ST refers)

iii. Services by way of construction, erection, etc., of original works pertaining to low cost houses up to a carpet area of 60 sq.m per house in a housing project approved by the competent authority under the “Affordable housing in partnership” component of PMAY or any housing scheme of a State Government are being exempted from service tax.

(new entry at S. No. 14 (ca) of notification No. 25/2012-ST refers)

5.6% Nil

with effect from 1st March, 2016.

2. The service of life insurance business provided by way of annuity under the

National

Pension System regulated by Pension Fund Regulatory and

3.5% Nil

Development Authority (PFRDA) of India is being exempted from Service Tax with effect from 1st April, 2016. (New entry at S. No. 26C of notification No. 25/2012-ST refers)

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3. Services provided by Employees' Provident Fund Organisation (EPFO) to employees are being exempted from Service Tax with effect from 1st April, 2016(New entry at S. No. 49 of notification No. 25/2012-ST refers)

14% Nil

4. Services provided by Insurance Regulatory and Development Authority (IRDA) of India are being exempted from Service Tax with effect from 1st April, 2016.

14% Nil

5. The regulatory services provided by Securities and Exchange Board of India (SEBI) are being exempted from Service Tax with effect from 1st April, 2016. (New entry at S. No. 51 of notification No. 25/2012-ST refers)

14% NIL

6. The rate of Service Tax on single premium annuity (insurance) policies is being reduced from 3.5% to 1.4% of the premium, in cases where the amount allocated for investment, or savings on behalf of policy holder is not intimated to the policy holder at the time of providing of service, with effect from1st April, 2016

3.5% 1.4%

Amendments are being made in rule 7A of Service Tax Rules, 1994 accordingly.

7. The services of general insurance business provided under 'Niramaya' Health Insurance scheme launched by National Trust for the Welfare of Persons with Autism, Cerebral Palsy, Mental Retardation and Multiple Disability in collaboration with private/public insurance companies are being exempted from Service Tax with effect from 1st April, 2016.

14% Nil

8. Services provided by National Centre for Cold Chain Development under Department of Agriculture, Cooperation and Farmer's Welfare, Government of India, by way of knowledge dissemination are being exempted from Service Tax with effect from 1st April, 2016. (New entry at S. No. 52 of notification No. 25/2012-ST refers)

14% Nil

9. Services provided by Biotechnology Industry Research Assistance Council BIRAC) approved biotechnology incubators to incubatees are being exempted from Service Tax with effect from 1st April, 2016.

14% Nil

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10. Services provided by way of skill/vocational training by training partners under Deen Dayal Upadhyay Grameen Kaushalya Yojana are being exempted from Service Tax with effect from 1st April, 2016.

14% NIL

11. Services of assessing bodies empanelled centrally by Directorate General of Training, Ministry of Skill Development & Entrepreneurship are being exempted from Service Tax with effect from 1st April, 2016.

14% NIL

12. The threshold exemption to services provided by a performing artist in folk or classical art forms of music, dance or theatre is being enhanced from Rs 1 lakh to Rs 1.5 lakh charged per event with effect from 1st April, 2016.

14% Nil

IV Relief Measures

1 To provide level playing field to Indian Shipping lines vis-a-vis foreign shipping lines, it is being proposed to:

(a) zero rate the services provided by Indian Shipping lines by way of transportation of goods by a vessel to outside India with effect from 1st March, 2016, and

No credit Inputs, input services & capital goods credit

(b) impose Service Tax on services provided by them by way of transportation of goods by a vessel from outside India up to the customs station in India with effect from 1st June, 2016 so as to complete the credit chain and enable Indian Shipping Lines to avail and utilize input tax credits.

Nil 14%

2 Notification No. 41/2012- ST, dated the 29th June, 2012 was amended by notification No.1/2016-ST dated 3rd February, 2016 so as to, inter alia, allow refund of Service Tax on services used beyond the factory or any other place or premises of production or manufacture of the said goods for the export of the said goods. This amendment is being made effective from the date of application of the parent notification (i.e. 1st July 2012).

3 The benefit of quarterly payment of Service Tax is being extended to 'One Person Company' (OPC) and HUF with effect from 1st April, 2016.

4 The facility of payment of Service Tax on receipt basis is being extended to 'One Person Company' (OPC) with effect from 1st April, 2016.

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5 Exemptions on services of: (a) construction provided to the Government, a

local authority or a governmental authority, in respect of construction of govt. schools, hospitals etc.

(b) construction of ports, airports,

[which were withdrawn with effect from 01.04.2015], are being restored in respect of services provided under contracts which had been entered into prior to 01.03.2015 on payment of applicable stamp duty, with retrospective effect from 01.04.2015.

5.6% of total amount

Nil

6 Services provided by way of construction, maintenance etc. of canal, dam or other irrigation works provided to bodies set up by Government but not necessarily by an Act of Parliament or a State Legislature, during the period from the 1st July, 2012 to 29th January, 2014, are being exempted from Service Tax with consequential refunds, subject to the principle of unjust enrichment.

5.6% of total amount

Nil

7 Services provided by the Indian Institutes of Management (IIM) by way of 2 year full time Post Graduate Programme in Management (PGPM) (other than executive development programme), Integrated Programme in Management and Fellowship Programme in Management (FPM) are being exempted from Service Tax with effect from 1st March, 2016. (New entry at S. No. 9B of notification No. 25/2012-ST refers)

14% NIL

8 The services provided by mutual fund agent/distributor to a mutual fund or asset management company, are being made taxable under forward charge with effect from 1st April, 2016, so as to enable the small sub-agents down the distribution chain to avail small scale exemption having threshold turnover of Rs 10 lakh per year, subject to fulfillment of other conditions prescribed.

14% 14%

V Interest Rate 1.

Interest rates on delayed payment of duty/tax across all indirect taxes are being rationalized and made uniform at 15%, except in case of Service Tax

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collected but not deposited to the exchequer, in which case the rate of interest will be 24% from the date on which the Service Tax payment became due. In case of assessees, whose value of taxable services in the preceding year/years covered by the notice is less than Rs. 60 Lakh, the rate of interest on delayed payment of Service Tax will be 12%. [The above changes will come into effect on the day the Finance Bill receives the assent of the President.] Existing: Customs 18%, Excise 18% Service Tax: 18%,24% & 30% Proposed: Customs Excise &, Service Tax 15% per annum; 24% in case of Service Tax collected but not deposited to the exchequer

VI Rationalization of Abatements Existing Proposed

1 Credit of input services is being allowed on transport of passengers by rail at the existing rate of abatement of 70%.

4.2%

Without credit

4.2%

With input service credit

2 Credit of input services is being allowed on transport of goods, other than in containers, by rail at the existing rate of abatement of 70%.

4.2%

Without credit

4.2%


3 Credit of input services is being allowed on transport of goods in containers by rail at a reduced abatement rate of 60%.

4.2%

Without credit

5.6%


4 Credit of input services is being allowed on transport of goods by vessel at the existing rate of abatement of 70%.

4.2%

Without credit

4.2%


5 The abatement rate in respect of services by way of construction of residential complex, building, civil structure, or a part thereof, is being rationalized at 70% by merging the two existing rates (70% for high end flats and 75% for low end flats).

3.5%/

4.2%

4.2%

6 The abatement rate in respect of services by a tour operator in relation to packaged tour (defined where tour operator provides to the service recipient transportation, accommodation, food etc) and other than packaged tour is being rationalized at 70%.

3.5%/

5.6% of amount charged

4.2% of amount charged

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7 The abatement on shifting of used household goods by a Goods Transport Agency (GTA) is being rationalized at the rate of 60%, without CENVAT credit on inputs, input services and capital goods. (The existing rate of abatement of 70% allowed on transport of other goods by GTA continues unchanged).

4.2% 5.6%

8 The abatement rate on services of a foreman to a chit fund is being rationalised at the rate of 30%, without CENVAT credit on inputs, input services and capital goods. (Amendment in entry at S. No. 8 of notification No. 26/2012-ST refers)

14% 9.8%

[The above changes will come into effect from 1st April, 2016.]

VII Reduce litigation and providing certainty in taxation 1 Indirect tax Dispute Resolution Scheme, 2016, wherein a scheme in respect of

cases pending before Commissioner (Appeals), the assessee, after paying the duty, interest and penalty equivalent to 25% of duty, can file a declaration, is being introduced. In such cases the proceedings against the assessee will be closed and he will also get immunity from prosecution. However, this scheme will not apply in cases: (a) where prosecution has already been launched (b) involving narcotics & psychotropic substances (c) involving detention under COFEPOSA.

2 Section 67A is being amended to obtain rule making powers in respect of the Point of Taxation Rules, 2011, so as to provide that the point in time when service has been provided or agreed to be provided shall be determined by rules made in this regard. Point of Taxation Rules, 2011 is being amended accordingly.

3 Section 93A of the Finance Act, 1994 is being amended so as to allow rebate by way of notification as well as rules.

4 Explanation 2 in section 65B (44) of the Finance Act, 1994 is being amended so as to clarify that any activity carried out by a lottery distributor or selling agent in relation to promotion, marketing, organizing, selling of lottery or facilitating in organizing lottery of any kind, in any other manner, of the State Government as per the provisions of the Lotteries (Regulation) Act, 1998 (17 of 1998), is leviable to Service Tax.

5 Notification No. 27/2012 - C.E. (N.T.) dated 18.06.2012 is being amended with effect from 1st March, 2016 so as to provide that time limit for filing application for refund of CENVAT Credit under Rule 5 of the CENVAT Credit Rules, 2004, in case of export of services, is 1 year from the date of:

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(a) receipt of payment in convertible foreign exchange, where provision of service has been completed prior to receipt of such payment; or

(b) issue of invoice, where payment, for the service has been received in advance prior to the date of issue of th e invoice.

6 Assignment by the Government of the right to use the radio-frequency spectrum and subsequent transfers thereof is being declared as a service under section 66E of the Finance Act, 1994 so as to make it clear that assignment of right to use the spectrum is a service leviable to Service Tax and not sale of intangible goods.

7 A condition mandating inclusion of cost of fuel in the consideration for availing abatement on the services by way of renting of motor-cab is being prescribed with effect from 1st April, 2016.

8 Service tax on the services of Information Technology Software on media bearing RSP is being exempted from Service Tax with effect from 1st March, 2016 provided Central Excise duty is paid on RSP in accordance with Section 4A of the Central Excise Act.

9 Mutual exclusiveness of levy of excise duty and Service Tax on Information Technology Software in respect of software recorded on media "NOT FOR RETAIL SALE" is being ensured by exempting from excise duty only that portion of the transaction value on which Service Tax is paid.

10 Incentives received by air travel agents from computer reservation system companies (CCRS): It is clarified that incentives received by the Air Travel Agents (ATAs) from the Companies providing Computer Reservation System (CCRS) are for using the software and platform provided by the CCRS like Galileo, Amadeus, etc. The CCRS are providing these incentives either for achieving the targeted booking of air tickets or for loyalty for booking of air tickets using their software system. Thus, the service provided by CCRS is to the Airlines and Air Travel Agent is promoting the service provided by CCRS to Airlines. Thus, the service provided by the ATAs to CCRS is neither covered in the negative list (Section 66D of the Finance Act, 1994) nor exempt by a notification. Therefore, service tax is leviable on the same.

11 Services provided by government or local authorities to business entities; Finance Act, 1994 was amended vide Finance Act, 2015 so as to make any service (and not only support services) provided by Government or local authorities to business entities taxable from a date to be notified later. 1st April, 2016 has already been notified as the date from which any service provided by Government or local authorities to business entities shall be taxable. Consequently, 1st April, 2016 is also being notified as the date from which the definition of support services shall stand deleted from the Finance Act, 1994

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VIII Service Tax Rules 1 To reduce compliance cost, the number of returns to be filed by a central

excise assessee, above a certain threshold, is being drastically reduced, from 27 to 13, one annual and 12 monthly returns. Monthly returns are already being e-filed. CBEC will provide for e-filing of annual return also. The annual return will also have to be filed by Service Tax assesses, above a certain threshold, taking total number of returns to three in a year for them. This change shall come into effect from 1st April, 2016.

IX Miscellaneous Period for issuing demand notices 1 Section 73 of the Finance Act, 1994 is being amended so as to increase the

limitation period from 18 months to 30 months for short levy/non levy/short payment/non-payment/erroneous refund of Service Tax.

Other changes in the Finance Act, 1994 2 The Negative List entry covering 'educational services by way of (a) pre-school

education and education up to higher and secondary school or equivalent, (b) education as a part of a curriculum for obtaining a qualification recognized by any law for the time being in force and (c) education as a part of an approved vocational education course [Section 66D (l)] and the definition of 'approved vocational education course' [section 65B (11)] are being omitted. However, the exemption shall continue by way of exemption notification No. 25/2012 - ST.

3 In the last Budget, the Customs, Central Excise and Service Tax laws were amended to provide for closure of proceedings where the assessee pays duty/tax due, interest and specified penalty. Further amendments are being made to Service Tax law so as to provide for closure of proceedings against co-noticees, once the proceedings against the main noticee have been closed.

4 The power to arrest in Service Tax is being restricted only to situations where the tax payer has collected the tax but not deposited it to the exchequer, and that too above a threshold of Rs 2 crore. The monetary limit for launching prosecution is being increased from Rs. 1 crore to Rs. 2 crore of Service Tax evasion.

5. The Pont of Taxation Rules (POTR). The Point of Taxation Rules, 2011 have been framed under provisions of clause (a) and (hhh) of sub-section (1) of section 94, now specific powers is also being obtained under section 67A to make rules regarding point in time of rate of service tax. Thus, any doubt about the applicability of service tax rate or apparent contradiction between section 67A and POTR would be taken care of. Therefore, consequent modifications have been done in POTR.

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(a) Rule 5 of POTR applies when a new service comes into the service tax net. Although in the case of new levy, provisions of Chapter V of the Finance Act, 1994, and rules made thereunder, are invariably made applicable in relation to the levy and collection of the new levy. However, doubts have been raised regarding its applicability in case of new levy. Therefore, an Explanation is being inserted in Rule 5 stating that the same is applicable in case of new levy on services. (b) Further, in rule 5 of POTR, it is provided that in two specified situations the new levy would not apply. Another Explanation is being inserted therein stating that in situations other than those specified where new levy or tax is not payable, the new levy or tax shall be payable. The above changes shall come into effect from 1st March, 2016.

X CENVAT Credit Rules

1 Invoice issued by Service provider for removal of inputs and capital goods shall be a valid document

2 The rules are being amended to improve credit flow, reduce the compliance burden and associated litigation, particularly those relating to apportionment of credit between exempted and non-exempted final products/services. Changes are also being made in the provisions relating to input service distributor, including extension of this facility to transfer input services credit to outsourced manufacturers, under certain circumstances. The amendments in these rules will also enable manufacturers with multiple manufacturing units to maintain a common warehouse for inputs and distribute inputs with credits to the individual manufacturing units.

3 The rules are being amended to provide for reversal of CENVAT Credit of inputs/input services which have been commonly used in providing taxable output service and an activity which is not a 'service' under the Finance Act, 1994. Rule 6 of Cenvat Credit Rules, which provides for reversal of credit in respect of inputs and input services used in manufacture of exempted goods or for provision of exempted services, is being redrafted with the objective of simplifying and rationalizing the same without altering the established principles of reversal of such credit. (i) sub rule (1) of rule 6 is being amended to first state the existing principle that CENVAT credit shall not be allowed on such quantity of input and input services as is used in or in relation to manufacture of exempted goods and exempted service. The rule then directs that the procedure for calculation of credit not allowed is provided in sub-rules (2) and (3), for two different situations. (ii) sub-rule (2) of rule 6 is being amended to provide that a manufacturer who exclusively manufactures exempted goods for their clearance up to the place of removal or a service provider who exclusively provides exempted services

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shall pay (i.e. reverse) the entire credit and effectively not be eligible for credit of any inputs and input services used. (iii) sub-rule (3) of rule 6 is being amended to provide that when a manufacturer manufactures two classes of goods for clearance upto the place of removal, namely, exempted goods and final products excluding exempted goods or when a provider of output services provides two classes of services, namely exempted services and output services excluding exempted services, then the manufacturer or the provider of the output service shall exercise one of the two options, namely, (a) pay an amount equal to six per cent of value of the exempted goods and seven per cent of value of the exempted services, subject to a maximum of the total credit taken or (b) pay an amount as determined under sub-rule (3A). (iv) The maximum limit prescribed in the first option would ensure that the amount to be paid does not exceed the total credit taken. The purpose of the rule is to deny credit of such part of the total credit taken, as is attributable to the exempted goods or exempted services and under no circumstances this part can be greater than the whole credit. (v) Sub-rule (3A) is being amended to provide the procedure and conditions for calculation of credit allowed and credit not allowed and directs that such credit not allowed shall be paid, provisionally for each month. The four key steps for calculating the credit required to be paid are :- (a) No credit of inputs or input services used exclusively in manufacture of exempted goods or for provision of exempted services shall be available ; (b) Full credit of input or input services used exclusively in final products excluding exempted goods or output services excluding exempted services shall be available; (c) Credit left thereafter is common credit and shall be attributed towards exempted goods and exempted services by multiplying the common credit with the ratio of value of exempted goods manufactured or exempted services provided to the total turnover of exempted and non-exempted goods and exempted and non-exempted services in the previous financial year; (d) Final reconciliation and adjustments are provided for after close of financial year by 30th June of the succeeding financial year, as provided in the existing rule. (vi) A new sub-rule (3AA) is being inserted to provide that a manufacturer or a provider of output service who has failed to follow the procedure of giving prior intimation, may be allowed by a Central Excise officer, competent to adjudicate such case, to follow the procedure and pay the amount prescribed subject to payment of interest calculated at the rate of fifteen per cent. per annum (vii) A new sub-rule (3AB) is being inserted as transitional provision to provide that the existing rule 6 of CCR would continue to be in operation upto

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30.06.2016, for the units who are required to discharge the obligation in respect of financial year 2015-16. (viii) Sub-rule (3B) of rule 6 is being amended so as to allow banks and other financial institutions to reverse credit in respect of exempted services on actual basis in addition to the option of 50% reversal. Explanations 3 and 4 are being inserted in rule 6, sub-rule (1) so as provide for reversal of CENVAT Credit on inputs/input services which have been commonly used in providing taxable output service and an activity which is not a „service� under the Finance Act, 1994. Sub-rule (4) is being amended to provide that where the capital goods are used for the manufacture of exempted goods or provision of exempted service for two years from the date of commencement of commercial production or provision of service, no CENVAT credit shall be allowed on such capital goods. Similar provision is being made for capital goods installed after the date of commencement of commercial production or provision of service. Rule 7 of the Rules dealing with distribution of credit on input services by an Input Service Distributor is being completely rewritten to allow an Input Service Distributer to distribute the input service credit to an outsourced manufacturing unit also in addition to its own manufacturing units. Outsourced manufacturing unit is being defined to mean either a job-worker who is required to pay duty on the value determined under the provisions of rule 10A of the Central Excise Valuation (Determination of Price Of Excisable Goods) Rules, 2000, on the goods manufactured for the Input Service Distributor or a manufacturer who manufactures goods, for the Input Service Distributor under a contract, bearing the brand name of the Input Service Distributor and is required to pay duty on value determined under the provisions of section 4A of the Central Excise Act, 1944. (Amendment in rule 2 (m) and rule 7 refers)

Presently, rule 7 provides that credit of service tax attributable to service used by more than one unit shall be distributed pro rata, based on turnover, to all the units. It is now being provided that an Input Service Distributor shall distribute CENVAT credit in respect of service tax paid on the input services to its manufacturing units or units providing output service or to outsourced manufacturing units subject to, inter alia, the following conditions,

(i) credit attributable to a particular unit shall be attributed to that unit only.

(ii) credit attributable to more than one unit but not all shall be to attributed to those units only and not to all units.

(iii) credit attributable to all units shall be attributed to all the units.

Credit shall be distributed pro rata on the basis of turnover as is done in the present rules

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Rule 7B is being inserted in Cenvat Credit Rules, 2004 so as to enable manufacturers with multiple manufacturing units to maintain a common warehouse for inputs and distribute inputs with credits to the individual manufacturing units. It is also being provided that a manufacturer having one or more factories shall be allowed to take credit on inputs received under the cover of an invoice issued by a warehouse of the said manufacturer, which receives inputs under cover of an invoice towards the purchase of such inputs. Procedure applicable to a first stage dealer or a second stage dealer would apply, mutatis mutandis, to such a warehouse of the manufacturer.

4 The CENVAT credit rules are being amended so as to allow CENVAT credit of Service Tax paid on amount charged for assignment by Government or any other person of a natural resource, over such period of time as the period for which the rights have been assigned.

5 Rule 9A of the Rules is being amended to provide for filing of an annual return by a manufacturer of final products or provider of output services for each financial year, by the 30th day of November of the succeeding year in the form as specified by a notification by the Board.

6 The existing sub- rule (2) of rule 14 prescribes a procedure based on FIFO method for determining whether a particular credit has been utilized. The said sub-rule is being omitted. Now, whether a particular credit has been utilised or not shall be ascertained by examining whether during the period under consideration, the minimum balance of credit in the account of the assessee was equal to or more than the disputed amount of credit.

7 Other Major changes in CENVAT Credit Rules • Credit on capital goods (equipment/appliance) even if used in office

allowed • Capital Goods upto value of 10,000 shall be considered input for the

purpose of availing credit • Credit on jigs, furniture, moulds etc. allowed to manufacturer even if

sent to other manufacturer. Earlier was restricted only when sent to job worker

• Permission for clearing the goods from job worker premise extend to 3 years from existing one year

[The above amendment shall come into effect from 1st April, 2016.] NOTIFICATIONS SERVICE TAX DT 01/03/2016

19/2016-Service Tax dt. 01-03-2016

Seeks to amend Service Tax Rules, 1994

18/2016-Service Tax dt. 01-03-2016

Seeks to amend notification No. 30/2012-Service Tax dated 20th June, 2012, so as to prescribe, the extent

Ravi Associates

100

of service tax payable by the service provider and any other person liable for paying service tax other than the service provider

17/2016-Service Tax dt. 01-03-2016

Seeks to bring into effect certain provisions of notification No. 05/2015-ST dated 1st March, 2015

16/2016-Service Tax dt. 01-03-2016

Seeks to bring into effect certain provisions of notification No. 07/2015-ST dated 1st March, 2015

15/2016-Service Tax dt. 01-03-2016

Seeks to bring into effect provisions of clause (h) of section 107 of the Finance Act, 2015

14/2016-Service Tax dt. 01-03-2016

Seeks to prescribe interest rate under section 73B of the Finance Act, 1994

13/2016-Service Tax dt. 01-03-2016

Seeks to prescribe interest rate under section 75 of the Finance Act, 1994

12/2016-Service Tax dt. 01-03-2016

Seeks to amend notification No. 32/2012-Service Tax dated 20th June, 2012, so as to exempt services provided by the bio-incubators approved by the Biotechnology Industry Research Assistance Council, under Department of Biotechnology, Government of India

11/2016-Service Tax dt. 01-03-2016

Seeks to exempt services in relation to Information Technology Software recorded on a media bearing RSP, provided Central Excise Duty has been paid

10/2016-Service Tax dt. 01-03-2016

Seeks to amend Point of Taxation Rules, 2011 so as to insert clarificatory Explanations

09/2016-Service Tax dt. 01-03-2016

Seeks to amend notification No. 25/2012-Service Tax, dated 20th June 2012, so as to amend certain existing entries granting exemption on specified services and inserting new entries for granting exemption from service tax on specified services

08/2016-Service Tax dt. 01-03-2016

Seeks to amend notification No. 26/2012-Service Tax, dated 20th June 2012, so as to make necessary amendments in the specified entries prescribing taxable portion and the conditions for availing the exemption therein

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